Chapter 30: Related Party Transactions

This chapter covers the special rules that prevent taxpayers from creating favorable tax results through dealings with related parties. REG questions in this area often test whether ownership attribution applies and whether a transaction’s apparent result is limited or deferred.

In This Chapter

• Attribution of Stock Ownership; Definition of Related Parties explains who is treated as related under the tax rules.
• Disallowance of Losses and Deferred Gains covers the main anti-abuse consequences of related-party sales.
• Imputed Interest and Below-Market Loans explains how the tax law recharacterizes non-arm’s-length financing.
• Family Partnerships and Complex Structures addresses attribution and substance issues in layered ownership arrangements.

How to Use This Chapter

• Read this chapter when the transaction mechanics seem easy but the tax result feels unexpectedly harsh.
• Focus on relationship definitions first, because the rest of the analysis usually follows from that classification.
• Revisit these sections when a question asks whether a loss is currently deductible or merely deferred inside a family or controlled-group setting.

In this section

• Attribution of Stock Ownership; Definition of Related Parties
  Explore the comprehensive rules for attributing stock ownership and defining related parties, including family and entity constructive ownership per the Internal Revenue Code.
• Disallowance of Losses and Deferred Gains
  Explore how special IRS rules disallow losses and may defer gains in related-party transactions, preventing taxpayers from recognizing or deducting artificial losses and manipulating tax outcomes.
• Imputed Interest and Below-Market Loans
  Explore comprehensive rules for imputed interest under IRC Section 7872, focusing on gift loans, corporate-shareholder loans, and how to calculate and report below-market interest.
• Family Partnerships and Complex Structures
  Explore how family partnerships and complex structures present unique opportunities and challenges in tax planning, including property shifting, disguised gifts, and special allocations.