Corporation to purchase an airplane:

Corporation has cash, to purchase an airplane.
Corporation has been inactive for several years.
(was a speculative home builder for 25 years, prior to being inactive)
It is a California (for profit) corporation.
One person owns 100% of the corporations stock.
Airplane is for the owners personal use, and not for any business use.
The airplane will be a single engine, and be flown by the owner.

What will the IRS, or the State of California think of this ownership
arrangement?

Can the owner pay a high (market) hourly rate for the planes use, and
the corporation pay for all expenses?

The corporation will not make a profit from this arrangement.

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Clarification of Question by clicker5-ga on 08 Nov 2002 21:50 PST

This is in regard to the comment by TaxMama-ga:

What if the owner of the corporation, reimburses the corporation 100%
of all costs incurred.

What happens, tax wise, when the plane is sold for a gain or a loss?

As an end result, I would like the corporation to use its cash to
purchase the plane, and I would be willing to pay all expenses.

I just commented on your question about bonds.
Reading this question as well , as a banker , I should advise you to
seek
professional financial and legal advise if you are contemplating
making these transactions.

Clicker --

Several comments here, as professional advice is best.  However, I've
operated three aircraft in two states and all have been owned by
corporations:
1.  the IRS rules set specific periods requiring profitability of the
corporation
2.  there is some debate over tax status of corporations in which
individuals have dominant interest (above 5%)
3.  the state of California has very particular rules -- especially
regarding "use tax" which we commonly know as "sales tax".  Consult
carefully on the provisions of the 6-month tax exile.

Though it's hard to find tax experts in some states for aircraft, in
California thre are companies that specialize in this area. Suggested
Google search strategy:
California + aircraft + purchase

Best regards,

Omnivorous-GA

Dear Katan,

I won't post this as an answer. Just as a very strong opinion.

Don't go there. 

IRS's project this year is to investigate tax shelters.
They are scrutinizing high income taxpayers.
They are scrutinizing more small corporations than
they have in the past.

A corporation buying an airplane simply for the owner's
use will raise eyebrows.  You could potentially face some
fraud charges. 

If you want to buy the plane with the money in the corporation
instead of taking it out and paying tax on the dividends,....fine.
But put that plane out for rental or lease and operate it as a 
real business. 

Just TaxMama's opinion....
But I haven't talked to IRS about these issues for at least a week, now.

Your TaxMama-ga

Clicker --

The Aircraft Owners & Pilots Association (AOPA) has an excellent
outline on the benefits of using corporate structures in their various
forms:
http://www.aopa.org/members/files/guides/flyclub.html#chap1

Best regards,

Omnivorous-GA

Hi again,

There's no problem with a corporate structure.

The problem arises when you use that aircraft
100% for personal use. And try to take deductions
for the amount you are paying your corporation
for the use of the aircraft. 

"Can the owner pay a high (market) hourly rate for 
the planes use, and the corporation pay for all expenses?"
 

Your TaxMama-ga