The Securities & Exchange Commission requires each company to disclose any personal use provided to its top executives (the Named Executive Officers). This disclosure is made in the annual proxy statement to shareholders, and details the costs incurred to provide personal flights to the Named Executive Officers included in proxy.

Most companies treat their SEC proxy reporting with great care. While the IRS treats corporate tax returns confidentially, proxy statements filed with the SEC are published on the Internet and available for anyone to view.

Many media articles and stories scrutinizing corporate aircraft have involved review of proxy statements to gain information about executive use of corporate aircraft:

2012
The Wall Street Journal publishes a major story comparing corporate proxy disclosures to corporate flight aircraft history obtained from the FAA through a Freedom of Information Act. They also publish an internet database of corporate aircraft flights for anyone to search.

2016
The Financial Times releases “Executive Perks: The Corporate Jet Files” after analyzing over 1,000 SEC filings for executives’ personal use of corporate aircraft.

2019
The Washington Post releases “Elon Musk’s highflying 2018: What 150,000 miles in a private jet reveal about his ‘excruciating’ year”, including an animation of each flight of his corporate aircraft.

SIFL Fringe Benefit Income
Corporate flight departments must impute income to the executives that have access to personal use of the aircraft. SIFL income will be added to their W-2 or 1099 for their flights and the flights of their family and guests.

Disallowed and Non-Deductible Aviation Expenses
The IRS requires each flight department to self-report the portion of its aviation-related costs which are disallowed (non-deductible). The disallowance is tied to non-business and personal use of the corporate aircraft. Generally speaking, the percentage of the flight department’s expenses which become non-deductible is the same as the percentage of each aircraft’s personal passenger load for the tax year. For example, if 25% of the occupied seat hours were for personal and entertainment use of the executives, directors or owners, 25% of the company’s overall aviation costs become non-deductible (including fuel, salaries, depreciation).

Time Sharing Agreements
Time Sharing Agreements (TSA’s) provide an opportunity for an executive to reimburse his/her corporate employer for personal use of the corporate aircraft. When the executive is reimbursing the company, it bears no incremental cost for the personal flights and the company’s proxy disclosure for personal aircraft use will be reduced or eliminated.

TSA’s have many benefits, but they also create accounting complexities:

• Reimbursements must stay within FAA billing limits
• They usually need to be tracked outside the corporate accounting system
• Incur 7.5% excise tax on US flights and a passenger tax on international flights
• Require periodic settlements with the CEO
• May require the CEO to maintain a deposit with the company for Sarbanes Oxley compliance

TSA’s are a useful tool for managing proxy disclosures, but will introduce hefty accounting efforts. To learn more, download “Accounting for Time Sharing Agreements and other Part 91 Reimbursements” for more information.

The Nichols Interpretation
The FAA began allowing another part 91 reimbursement method in 2010 via a letter to the NBAA which permits reimbursement from executives for pro rata operating costs. It’s known as the “Nichols Interpretation.” It allows for greater reimbursement levels than a time sharing agreement, but is much more restrictive with regard to how it can be used. As a result, time sharing agreements remain much more popular.