Golf, Private Jets, and Executive Perks: Where Are the IRS and SEC?

Excellent article in this weekend's Wall Street Journal:  JetGreen: The CEO's Private Golf Shuttle; Corporate Planes, Meant to Save Time, Also Ferry Executives to Top Courses.  The reporter (Mark Maremont) compared USGA golf handicap records available on the Internet (which list rounds played by golfers at particular courses and their scores) with flight records from commercial aviation services to track how often CEOs used corporate jets to ferry them on golf excursions.  (See the chart here showing golf trips of eight CEOs to courses like Augusta National.) The article notes that SEC and IRS rules encourage this perk:

Companies usually pick up the tab for personal travel on their jets, so each trip can cost shareholders tens of thousands of dollars. The full cost of these flights can be hard to unravel. Under SEC regulations, companies must disclose the annual so-called incremental cost of personal travel by top executives once the cost of total perquisites exceeds either $50,000, or 10% of an executive's annual salary and bonus. Companies typically define incremental cost as the added expense of a given flight -- such as fuel, landing fees and a crew's hotel costs.

This method of disclosure can understate the cost of flying chief executives to vacation destinations because it excludes expenses such as crew salaries, many maintenance charges and the purchase price of the plane. The business jets favored by many public companies cost $15 million to $40 million to buy and roughly $3,000 to $7,000 to operate for an average hour, according to flight-cost data from Conklin & deDecker Aviation Information, an aviation research and consulting firm based in Orleans, Mass. The SEC is considering switching to a new disclosure formula that would reflect these broader costs. If adopted, it could double or triple the flight costs that companies must disclose.

For top executives, this all adds up to a bargain. Typically, they pay only the income tax assessed on the value of personal flights. The tax usually amounts to just a few hundred dollars per flight, and is determined by a complex IRS formula [Reg. §1.61-21(g)] that takes into account the distance traveled and the employee's position in the company.

The article cites the findings by David Yermack (NYU, Stern School of Business) that CEOs who belong to golf clubs far from their company's headquarters tend to be big users of their company planes. The publicly disclosed cost of aircraft use for these CEOs is two-thirds higher, on average, than for CEOs who are not long-distance golf-club members.  I tracked down the paper, Flights of Fancy: Corporate Jets, CEO Perquisites, and Inferior Shareholder Returns, on SSRN.

I wonder whether the WSJ article will spur the USGA to abandon its practice of making golf handicap records available on the Internet.  If not, perhaps CEOs and others concerned about privacy will develop strategies to avoid public disclosure of their identities much like the availability of property ownership and assessment records on the Internet has spurred holding real estate through trusts and other entities. 

As one who has done a lot of scholarly work recently on rankings (see here, here, and here), and who publishes weekly (Top 5 Tax Papers) and monthly (Top 25 Tax Faculty) rankings, I issue this invitation to the TaxProf community:  if you are a golfer, email me and I will compile at a later date a ranking of the top tax golfers.