M4 Related Party Transactions

Question 1

Constructive ownership. Section 267 attribution rules - rule 1 stock owned directly or indirectly by a corporation, partnership, etc. is treated as owned ___

Answer 1

PROPORTIONATELY (Multiply together to determine ownership percentage)

Question 2

Constructive ownership. Section 267 attribution rules - rule 2 stock owned directly or indirectly by family members is treated as owned __

Answer 2

TOGETHER (Add together to determine ownership percentage)

Question 3

Capital gains and related parties. How are gains treated between related parties (two exceptions).

Answer 3

TAXABLE

Except husband and wife or 50% ownership (basically selling to yourself)

Question 4

Basis Rules and Related Parties. Same as which rules?

Answer 4

Gift Tax basis rules (depends on whether the second relative’s resale price is higher, lower or between)

SET UP:
Cost = ___
FMV = ____

Then sales price

Question 5

Amount of gain recognized.

Answer 5

Limited to the extent future sales price exceeds the previous relative’s cost basis

Question 6

Holding period and related parties.

Answer 6

New owner’s period of ownership