How the FAA and IRS View Flying to Work

Commuting expenses can pose challenges when they involve a corporate jet. Unlike flights for company business, commuting to work is generally considered employees’ personal responsibility. The difference affects whether and how much employees can pay for commuting flights under Federal Aviation Administration regulations and, to the extent that employees don’t pay for them, whether they have taxable income and the company has a corresponding tax deduction.

The FAA’s interest in “commuting” focuses mainly on making sure that pilots get sufficient rest between flights. Pilots who are operating a “commercial” flight under FAA rules for charters and airlines are subject to the agency’s rest and duty-time requirements; they can’t drive for six hours to the airport for a flight and count the driving time as “rest.” FAA commercial regulations provide that crew time spent driving to and from the airport that isn’t “local in character…is not considered part of a rest period,” and as noted in an FAA Chief Counsel Opinion, “the transportation must be reasonably brief.”

FAA regulations may also apply if an employee wants to pay for a commuting flight on the company jet. This might not be an issue if the flight is within the scope of and incidental to company business but as noted earlier, the cost of “commuting” is usually deemed the employee’s responsibility. In other words, for FAA purposes, except in unusual circumstances, transporting you to your standard workplace is arguably not part of your company’s business; and an FAA regulation that permits officials, employees, and guests of the company to pay for business flights would not ordinarily apply. If you want to pay for commuting flights, those flights must either be operated under a commercial certificate or be pursuant to an exception such as a timesharing agreement that allows payment. In the case of a timeshare, the payments would be limited to two times the cost of fuel, plus specific incidental expenses.

The FAA also permits “high-level employees or officials” to reimburse the company for flights on its jet when business needs require them to be immediately available to cancel a trip or return on short notice. (See “Paying to Fly the Company Jet.”) That could include commuting flights. And if you are commuting on your own aircraft, as opposed to the corporate jet, the FAA would allow the company to reimburse you for flight costs because it is not providing the transportation.

Such reimbursement would ordinarily constitute taxable income to you, so it’s not surprising that the IRS is deeply interested in commuting expenses, especially on business jets, where the costs exceed those of virtually any commute short of a ride on a Soyuz to the International Space Station. In June 2020, following the 2017 tax act, the IRS issued proposed regulations on transportation and commuting expenses, which quickly drew detailed comments from the National Business Aviation Association (NBAA).

“Commuting,” for IRS purposes, means “transportation between your home and your main or regular place of work.” Basically, the cost of commuting to your regular workplace in your own jet is not deductible, even if you spend the whole time in the cabin working. But the line between “commuting” and “business expense” is vague enough that flight costs may still be deductible. Flying to work at a place other than your “regular place of work” or flying from a place where you do not reside or where you have another office (even a home office) can count as non-commuting business travel, depending on what the IRS likes to call the “facts and circumstances.”

Commuting by aircraft creates special problems. If you drive to your place of employment, you are likely to depart from your house and park within walking distance of your workplace, maybe even in the same building. But if you commute on a business jet, you won’t be taking off in your driveway or parking the jet at your office unless you happen to live or work in a hangar. 

The IRS recognized this in the proposed regulations, which acknowledge that “an employee who commutes to work by airplane from an airport near the employee’s residence to an airport near the employee’s place of employment is traveling between residence and place of employment.” This, of course, begs the question of how “near” it has to be. And it assumes that the employee actually goes to the place of employment after landing; if he instead attends a business meeting at a different location, the trip may be an ordinary business flight.

Even when it’s clear that a flight is for commuting, the NBAA’s comments identify clarifications needed in the proposed regulations. If your company provides you with a free commuting flight on its jet, the IRS treats the transportation as a fringe benefit. As such, it should be taxable to you to the extent that you’re not paying for it. However, the proposed regulations fail to clarify that the company should be entitled to a deduction if it treats the cost of the flight as taxable income for you. Otherwise, the same dollars would be taxed twice—first as income (which is not offset by a deduction) to the company and second to you. 

The proposed regulations also don’t make clear that the disallowance of tax deductions to the company applies only to bona fide “commuting” flights. Thus, if you work at the company’s office in San Francisco, but you fly from home on the company jet to a meeting at your employer’s satellite office in Chicago, it should be possible for the company to treat the flight costs as a deductible expense. Once again, the flight isn’t commuting; it’s just normal business travel, and the costs of that should be tax deductible.  

The IRS offers an “exception” to the disallowance rules in the proposed regulations for commuting costs: they won’t disallow the deductions if commuting on the jet is necessary “for ensuring the safety of the employee.” The IRS refers to existing regulations regarding “bona fide business-oriented security concerns.” (See “How a Security Program Can Cut Flying Costs.”) However, the NBAA rightly asks the IRS to clarify that personal circumstances outside those regulations should also constitute exceptions, such as commuting by an employee with medical conditions that place the employee at high risk of contracting and dying from exposure to COVID-19.

Finally, if disallowance of tax deductions for commuting expenses is unavoidable, only the marginal costs of the flight should be disallowed. For example, if the company jet is already scheduled to fly from your home to your place of employment and you catch a ride, the disallowed expenses should be minimal at best.

Let’s hope the NBAA’s comments on the proposed regulations will receive the consideration they deserve.