Aviation Taxes: Enforcement and What Are We Seeing? – Part I
Angel Houck pulls back the curtain on IRS aircraft audits — what's triggering them, what they're looking for, and why the enforcement wave isn't over yet.
Taxes related to aircraft ownership and operations can be complicated and are enforced by many different jurisdictions. I have written a number of articles outlining the various compliance requirements including federal income tax, state sales and use tax, local taxes (including property tax), and federal excise tax. It can all feel overwhelming at times, but it is important to address all tax compliance matters to avoid a surprise bill down the road.
A question I receive regularly is how often we see enforcement action. This depends greatly on the type of tax and the jurisdiction. This article (and the forthcoming Part II) will outline some of the most common audit scenarios and how to prepare for them.
Federal Audits
Federal audits tend to be the biggest concern among aircraft owners, especially those looking to take advantage of the 100% bonus depreciation (see the One Big Beautiful Bill Act and One Big Beautiful Bill Act II articles, May and July 2025). A few years ago, the IRS announced that it would increase audits of businesses that owned aircraft. Shortly after, we saw a wave of aircraft audits in 2024, followed by a slow period after the change in administration and IRS budget cuts in 2025. As of late, we are seeing some action again from the IRS, with a new round of audits coming through.
Over the past few years, the IRS has streamlined the aircraft audit process and we are seeing consistent documentation requests to substantiate business aircraft use. In my experience, there are two items that tend to be the focus of recent audits.
First, the initial request consistently asks for the IRC Sec. 280F calculation for aircraft that took bonus depreciation or other MACRS depreciation. This refers to the Qualified Business Use requirements for accelerated depreciation (see the Bonus Depreciation article, Oct. 2024).
Second, auditors are focused on “written and contemporaneous” documentation. The backup documentation to support the business usage must be written and created on or around the time of the original flights (see the Flight Documentation article, March 2025).
What's Coming in Part II
Although federal audits are the focus of many aircraft owners, enforcement actions by state and local jurisdictions can also have a substantial financial impact. Stay tuned for Part II as we dive into the various state and local enforcement practices.
First Quarter Aircraft Finance Reflections: What 2026 Has Taught Us So Far
Mike Smith takes stock of a wild first quarter, sticky inflation, steady rates, and strong demand, and explains what the aircraft finance market circle of life means for buyers in 2026.
Well, that was a wild start to 2026, wasn’t it? To call these times interesting would be an understatement. What have we learned so far?
- Interest rates haven’t materially fallen. There was an expectation going into the year that we’d see a 0.5% or higher drop in interest rates from the Federal Reserve; as of now, they’ve held rates steady.
- Inflation remains sticky. The Iranian War’s impact on energy prices has increased the annualized inflation rate, which isn’t showing signs of reversing anytime soon.
- Geopolitical dynamics are as obscure as ever. There’s not much point in even commenting here, the news changes by the minute. As with everything, clarity helps, and until we have it, uncertainty remains.
- Loan and purchase demand remains strong. The first quarter seemed to be pretty strong across the board, as I heard at the National Aircraft Finance Association conference this week.
- Aircraft values remain elevated. This continued strong demand impacts aircraft prices. The caveat is whether the demand and value curve will remain strong throughout the loan term or whether values will be impacted over time.
What does this mean for the aircraft finance market for the rest of this year? At a high level, these items all interplay. Interest rates will adjust in response to what the market feels is happening with inflation and overall economic strength. Those factors may be impacted by geopolitical developments. On the aircraft side, basic economics show that aircraft values are affected by demand, and that demand is affected by overall market conditions. Market conditions are created through economic conditions. Call it the “aircraft finance market circle of life”.
Stay tuned, there’s still quite a lot of 2026 ahead!
Aircraft Liability Coverage Limits: What Every Owner Needs to Know
Tom Hauge breaks down aircraft liability coverage limits across every aircraft category and explains why your umbrella policy probably won't save you the way you think it will.
What Is Liability Coverage?
For those unfamiliar with the term, liability coverage refers to bodily injury and/or property damage to a third party that you, as the owner/pilot, could be held responsible for due to your negligence, resulting in a third-party injury/death or damage to property.
How High Can Your Limits Go?
High liability limits are typically readily available on a professionally crewed turbine aircraft. In the case of two-crew-required business aircraft, you can obtain liability limits of $500M or higher in most cases, depending on the market you are insured with and the type of equipment (age of aircraft) operated.
Even on single-pilot-operated light jets, when professionally flown, the current market routinely yields options of $25M-$50M in some cases.
The current market, however, does not support high limits for single-engine owner-flown turbine or piston aircraft in the same way. Owner-flown single-pilot limits are usually tapped out at $10m – in rare cases, some owner/pilots may qualify for a $25m limit in turbine aircraft, but those cases are pretty rare in today’s world.
The piston market is a completely different animal and very tight in terms of limits – Single-engine (SEL) piston aircraft generally won’t see limits higher than $2M and $5M in some cases, but only for the most qualified pilots.
Excess Liability: Filling the Gap
There do, however, exist ‘excess liability’ options in the piston and turbine marketplace for those who may not be able to achieve the desired liability protection. More qualified owners/pilots in pistons can typically access the 2M-5M limits.
A good rule of thumb is to max out the primary liability limits available (on the aircraft insurance policy) before exploring excess liability options with your broker. The higher the primary limit obtained, the sharper the excess premium will be when layering excess liability on top of the primary to achieve the desired final limit. For instance, you may max out your Cirrus insurance at $2M on a primary policy and also be able to secure 2-3M in excess liability to layer on top, yielding $4M or $5M in total aircraft liability.
Don't Assume Your Umbrella Policy Has You Covered
One final thought on liability coverage in the market concerns‘umbrella’ policies. I often hear clients say, “I have a $50M umbrella policy to protect me, so I’m not worried about lower limits on my aircraft insurance policy.” More often than not, the umbrella policy you carry personally to cover your other insurance (homeowners, auto, etc.) will EXCLUDE aviation-related exposures.
So you are best to confirm with your umbrella carrier first if the coverage applies to your aircraft or aviation exposures. I have seen very few umbrella policies encompass aviation risks in my 22+ years in the business – not to say some won’t, but most won’t cover aviation.
If you’re seeking higher liability coverage, it’s prudent to engage your broker to explore excess liability options, which may be able to bring your limits to the desired coverage level via the ancillary product being available, depending on your specific risk.
Liability Part 2: Five Ways to Protect Against Aircraft Liability
John Farrish gets practical in Part 2 of his liability series, breaking down five real strategies aircraft owners can use to protect themselves when things go terribly wrong.
Potential liability for the aircraft is always top of mind for new and experienced plane owners. Since putting the plane in a special-purpose entity doesn’t work to protect against liability (see here), what are the real options? Here are the five key steps to consider to protect an owner in the event that something goes wrong.
Insurance
Similar to most potential liabilities in life and business, the first line of defense is your insurance policy. The liability limits need to be high enough to serve as a ransom payment to the plaintiff’s lawyer. It needs to be substantial enough that a plaintiff will settle for policy limits now rather than pursue a “jackpot” against the operator of the aircraft that could drag on for half a decade or longer.
Working with an aviation insurance broker is key; most other business or umbrella policies typically exclude coverage for aircraft operations. Your aviation insurance broker can also ensure that the proper entities are insured (e.g., owner, operator, related parties).
Management
Keeping the plane in good mechanical condition and crewed by skilled pilots is also key. Anything that can be done to avoid an incident in the first place has obvious value. Most clients accomplish this by hiring a great management company to oversee maintenance, crew hiring, and dispatch.
Some clients try to handle these tasks “in-house,” but their time is usually better spent generating income and focusing on their business rather than trying to save a few nickels on management.
Another key benefit of a good, larger management company is access to its fleet insurance policies. These can provide ten times the insurance coverage, often at a lower premium than an owner or operator could get on their own.
Charter
An often overlooked but highly effective way to avoid liability is to lease the aircraft to a charter company. Under this arrangement, the owner is an aircraft lessor with little liability. The charter company operates all of the owner’s flights and serves as the operator (remember, the role with the most liability). The owner can then charter their own plane as a charter customer, typically at cost, and there should be no liability if something goes wrong when they’re simply a passenger.
This strategy is relatively new. Charter flights typically incur a 7.5% Federal Excise Tax, which is a lot for an owner to pay to fly on their own plane. But recent changes to the tax code have exempted charter flights by an owner on their own plane from this tax.
Training and Education
For owner-pilots, there are no tricks to avoid liability, and the insurance coverage available is usually less than ideal. So, instead, the focus should be on keeping liability theoretical by running the operation as safely as possible. This means regular, ongoing training; joining owner groups for their make and model to attend training workshops and share best practices; and staying humble to avoid becoming cavalier about flight in subpar conditions or circumstances.
Estate and Risk Planning
For all operators, it is important to understand the impact of a judgment against the individual or the business. Any individual who can afford an aircraft can afford a good estate planning attorney. Their assets should be protected by whatever means are available in your home state, so that a judgment cannot take away everything you’ve worked your whole life to build.
For businesses, it is ideal if the plane can be operated by an entity that is fairly asset-light, such as a management services company that oversees the rest of the company’s operations. If the plane is operated by a business with a billion dollars in assets, it will be hard to avoid a large judgment against it.
While potential liability is real, an understanding of who has the liabilities and what can be done to mitigate them can help owners sleep at night. When combined with good tax planning and an operations plan, owners can fly confidently and enjoy how their aircraft serves their family and business.
This article is not intended, nor should it be construed or relied upon, as legal advice. The comments, recommendations, and analysis expressed in this article are those of the individual author, John Farrish, and are purely informational. Each aircraft owner’s situation is unique and requires its own thorough discussion and analysis. This article does not create an attorney-client relationship between you and the author or his law firm. If specific legal information is needed, each person should retain and consult an attorney with knowledge of the subject matter.
Vision Drift Is Killing Your Team.
Dustin Cordier names the silent killer inside high-effort, low-results teams, vision drift. If your people can't recite your company's direction in one sentence, the problem isn't them.
Many companies I work with do not fail from a lack of effort. They suffer from scope creep at the top. The owner starts Q1 wanting to grow one area of the business, pivots in Q2 to standing up another, lands in Q3 convinced the future is something else, and by Q4 the team is exhausted, the scoreboard is irrelevant, and it’s unclear what winning was supposed to look like.
That is vision drift. It is lethal, and it is almost always self‑inflicted.
Elon Musk is a master of the opposite discipline. SpaceX has one anchor: get humanity to Mars. Every decision runs through that filter. Starship, Starlink, Raptor engines, the launch cadence. If it isn’t built to go to Mars, it does not happen. When the vision is clear, the answers are easy. You know what to hire, what to build, what to say no to. You don’t need a committee to decide whether a project belongs. You need a sentence every person on the ramp can recite.
Jeff Bezos learned the same lesson the hard way. Early at Amazon, his operator, Jeff Wilke, pulled him aside and said, “Jeff, you have enough ideas to destroy Amazon.” Wilke was a manufacturing expert. He saw idea flow the way a plant manager sees work in process. Every new initiative Bezos released created a backlog, and a backlog without capacity is not momentum. It is distraction dressed up as ambition. Bezos changed how he operated: he held ideas back, released them at the rate the company could absorb, and built a leadership team that could handle more throughput over time.
Now bring that to your team.
If you can’t state your company’s singular vision in one sentence, your leadership team can’t either. If your leaders can’t, they are making decisions based on guesses. Pricing gets sloppy. Hiring tilts toward whoever is available. Capital goes to the project that was loudest last Monday. Your scorecard stops meaning anything because the goal keeps moving, and six quarters in, you’re wondering why your team feels burned out even though nothing big has actually shipped.
Here’s the test. Write your company vision on an index card. Walk the hangar tomorrow. Ask five people what the company is building and why. If you get five different answers, the problem isn’t the team.
The vision is clear. The answers are easy.
Your job is to stop releasing ideas faster than your people can turn them into flight hours.