Related Party Transactions

Question 1

Under IRC Section 267 Losses from sales and exchanges between certain related parties are not recognized for tax purposes. Related parties are considered

Answer 1

brother and sisters, half-brothers and half-sisters, spouses, ancestors (parents and grandparents), and lineal descendants

Relatives by marriage, or in-laws, are not considered related parties for tax purposes

Question 2

Losses on sale transactions between related parties are not recognized. When the related party, who purchased the asset, sells to an outsider

Answer 2

then the gain is reduced by the loss previously unrecognized but not in excess of the gain. In other words, the related taxpayer may not be able to take all of the previous loss unrecognized

Question 3

IRC Section 267 determines that because of the constructive ownership rule

Answer 3

a shareholder may be considered to own shares that are owned by his mother, his business partner, and his wife. Normally, an aunt is not included in the close family group

Question 4

a PSC may deduct payments made to owner-employees

Answer 4

only in the year in which the owner-employee includes it in income

Question 5

IRC Section 267 has a special rule for sales to a related party that are unpaid at the end of the year. This rule applies when

Answer 5

the seller is on the cash basis and the buyer is on the accrual basis.

The buyer may not deduct the expense until the seller has reported the income.

Question 6

For a corporation to be a member of an affiliated group

Answer 6

at least 80% of the corporate stock must be held by other members of the group