It's SIFL Season
If your aircraft is owned by a business, it is likely that you have a fringe benefit reporting requirement known as SIFL.
What Is SIFL?
When a company-provided aircraft is used for personal purposes, the IRS treats it as a fringe benefit received by the user, and an amount must be included in their income for the value of the flights. The IRS provides a valuation formula to determine the amount that must be reported, called the Standard Industry Fare Level formula, or SIFL for short.
How SIFL Is Calculated
The SIFL rates are updated twice a year, with new rates taking effect on January 1 and July 1 each year. The formula uses a cents-per-mile rate, adds a terminal charge for each landing, and then multiplies the total by a factor that is dependent on the size of the aircraft, making the SIFL amount higher for larger aircraft.
This total is then multiplied by the number of non-business passengers on each flight leg and treated as income to the flight host. The total income should be reported in the same way as the recipient receives their compensation from the company, which is usually on a Form W-2, 1099, or K-1.
Nuances and Special Rules
There are several nuances to the calculations, including adjustments for “non-control” employees, children under 2 years old, and flights with more than half of the seats filled with business passengers.
The SIFL income must be reported on the originally filed tax return. If not, you lose the ability to use the favorable SIFL rate and have to impute the income at a much higher fair market charter rate.
It is important to note that imputing the SIFL does not relieve the company of calculating disallowed expenses related to the entertainment use of the aircraft. The total disallowed expenses can be reduced by some, or sometimes all, of the SIFL reported.
However, since the SIFL is less than the cost of operating the aircraft, there is usually some remaining adjustment to be made to the deductible expenses.
Why October Is SIFL Season
So why do we call this SIFL season? There is an option to calculate the SIFL for flight activity through October 31 each year, which allows two months to calculate the income and include it on the recipient’s current-year payroll.
Beginning November 1 and through the end of the year, the aviation CPAs of the world are busy working through the calculations to meet the reporting deadlines.
Take Action Now
If your company aircraft had any personal use during the year, now is the time to gather your flight logs through October 31 and consult your tax advisor to ensure proper SIFL reporting.
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