Corporate Tax Hike on the Horizon
Amidst the ongoing debate on tax equity, the Biden Administration has put forth a bold proposal that could significantly alter the fiscal landscape for corporations and high-income individuals. The proposed changes, which aim to ensure that “every big corporation finally begins to pay their fair share,” suggest a hike in the corporate alternative minimum tax from 15% to 21%. Additionally, the administration seeks to raise the corporate tax rate to 28%, a notable 7% increase from the current rate.
The proposal doesn’t stop at domestic measures; it also sets its sights on multinational corporations with offshore earnings. A substantial tax rate increase for offshore earnings is on the table, potentially doubling the current 10.5% to 21%. This comes alongside the introduction of the Undertaxed Profits Rule (UTPR), which could result in higher US corporate taxes for entities under large multinationals that pay less than the proposed 15% minimum tax rate on earnings in other jurisdictions.
Will Proposed Changes to Corporate Aircraft Taxes Fly?
The administration’s proposal also includes a crackdown on what it perceives as “corporate jet loopholes.” If passed, the new policies would see a drastic increase in tax for jet fuel used by corporate aircraft—escalating by nearly 500% from $0.22 per gallon to $1.06 per gallon. This significant jump in fuel tax rates, which have remained unchanged for over three decades, contrasts with the more than 7% tax and “Passenger Facility Charge” paid by typical airline passengers to support the National Airspace System. Corporate aircraft, which account for 7% of all US air traffic, currently contribute a mere half of one percent of tax revenues collected by the Federal Aviation Administration (FAA) through fuel taxes alone.
IRS Recently Announced Audits of Corporate Aircraft Expenses
In line with these proposed tax reforms, the IRS has announced its intention to audit business entities with corporate aircraft. The focus of these audits will be on deductions related to “business aircraft” used by large corporations, partnerships, and high-income individual US taxpayers. The IRS will scrutinize whether expenses are properly allocated between business and personal use, and personal travel on company jets could lead to “income inclusion,” equating to the cost of first-class commercial airfare for similar travel.
IRS Commissioner Danny Werfel emphasizes this initiative as part of a broader effort to “reverse the historic low audit rates and limited focus” on wealthy individuals and organizations. These measures underscore the IRS’s commitment to ensuring compliance with federal law and addressing what some view as long-standing inequities in the tax system.