Related Party Transaction

Question 1

Related party provisions

wRap for losses

Answer 1

family: brothers, sisters, spouses, ancestors, and lineal descendants ( father, son, grandfather)

more than 50% owned directly or indirectly

in-laws and step relationships are NOT related to partied

Question 2

constructive ownership

Answer 2

owned proportionately

K owns 80% of H, H owns 30% of C

K owns 24% ( 80%*30%) of C

……………………………..
if your wife, son owns a certain % add those up too

Question 3

Capital gains and related parties

Answer 3

capital gains are taxed

exception:
- two spouses
- 50% plus controlled corp or partnership ( taxed as ordinary income)

……………………
capital loss and related parties
- Disallowed

Question 4

basis rule and related parties

Holding period

Answer 4

same as gift (tax) basis rules

• sell it high then use the original cost
• if they sell it low, then use then their purchase price
• anything in middle no gain or loss

……………………………………
Holding period
- new owners period of ownership

Question 5

Below-market loans and Imputed Interest

Answer 5

• to prevent from offering below-market interest rates on related parties
• who make loan should report any foregone interest as interest income

....
related parties: 
- gift 
- compensation-related loans 
- corporation-shareholder loans 

…………..
De Minimis Exception
1) gift loans between individuals
below 10k

2) compensation-related and corporate-shareholder loans
- below 10k

………………………….
Special rules for gift loans not in excess of $100k
- foregone interest to be included in income by the lender and deducted by the borrower is limited to the amount of the borrowers’ net investment income