Cliff, if the scenario you describe gets found in an audit of "3X"'s books, the IRS is going to *hammer* the corporation and the guy getting the benefit.
This, much like your beef about "illegal charters" under 91.501, is much ado about nothing.
You're right in a certain respect, but the problem is much bigger than most people think about "illegal charters".
Normally, a company includes the income in the executive's W-2 as it is close to nothing.
See the example here from April 2010 in BJT-
Understanding the tax advantage requires understanding the tax. Consider Mr. Big, the president of Big Co., who frequently uses the corporate Hawker 800XP to travel to company facilities and business meetings. He also uses the aircraft to fly to his vacation home in the Caribbean. Part of Mr. Big's deal with Big Co. is that those personal flights are free.
This creates a tax problem for Mr. Big. The IRS generally treats an executive's free travel on company aircraft for nonbusiness purposes as a taxable fringe benefit. So unless Mr. Big wants to pay fair value for his flights to the Caribbean, he has to include that value on his personal income tax return. But since he isn't being charged, how does he calculate the amount? The IRS gives him two choices: impute as income the cost to charter a Hawker 800XP for the trip or use the IRS's special valuation rule, called the Standard Industry Fare Level (SIFL), which provides a valuation based on first-class airfare.
To calculate the income under SIFL, you multiply the number of statute miles flown by the applicable SIFL rate, currently $0.2484 per mile. For a 500-mile flight, for example, the total would be $124.20. You then multiply that total by a factor that depends on the aircraft's maximum certified takeoff weight. In the case of Big Co.'s Hawker 800XP, the takeoff weight results in the highest multiplier: 400 percent. So Mr. Big's taxable income is $124.40 times 4, or about $498.
$498 income from using the corporate jet personally for, lets say, a one hour flight. Same flight on a charter would be >$3.5K if someone would let you fly one way. BTW, the amount included as income is the same if you are on G550.
Does this sound right or make anybody, other than the executive, feel good? It cost the executive less than $174 to do the trip. The $174 is the tax he paid on the income inclusion.
