The IRS has released Chief Counsel advice (CCA 202117012) concluding that a sole proprietor should rely on the primary purpose test to determine the deductibility of aircraft expenses for an aircraft used both for business and personal use.
The advice addressed a sole proprietor who owned an aircraft through a single-member LLC. The taxpayer used the aircraft for travel related to business and entertainment purposes. Frequently, the sole proprietor traveled with family members, friends and business associates on the aircraft.
Treas. Reg. Sec. 1.162-2(b)(1) provides for the deductibility of transportation expenses on a “mixed use” trip when the primary purpose of the trip is related to the taxpayer’s trade or business. This rule differs from the determination of whether expenses incurred at a travel destination are deductible, which depends on whether they are properly allocable to the trade or business. The CCA referenced Burns v. Commissioner
(T.C. Memo. 2009-168), which disallowed travel expense deductions because the primary purpose of the trip was to visit family and friends and the taxpayer failed to provide sufficient information for business expenses incurred at the destination. Because the sole proprietor’s aircraft use was for both personal and business purpose, the deductibility of the flight expenses is determined under the primary purpose test by an analysis of the facts and circumstances.
The IRS held that the rules on the deductibility of aircraft expenses related to trade or business under Sections 274(e)(2) and (9) do not apply to the sole proprietor, as these sections are intended to exempt employees from including the use of aircrafts for business purposes as additional compensation. Since a sole proprietor is considered self-employed and a taxpayer’s use of his or her own aircraft is not compensation, the allocation rules under Treas. Reg. Sec. 1.274-10 were also deemed inapplicable.
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