REG_3_04

  1. What is the definition of the related party provision?
    Stock held by a related party is treated as though it is actually held by the taxpayer.
  2. Who is included in the definition of related parties
    • brothers and sisters
    • husband and wife
    • ancestors and lineal descendants
    • entities that are more than 50% owned, directly or indirectly, by individuals, corps, trusts, partnerships
    • relationships b/t trusts, grantors, fiduciaries, executors, beneficiaries
    • tax-exempt orgs and the person controlling the org
  3. What are the 3 constructive ownership rules for related party attribution?
    • Rule 1: stock owned directly or indirectly by a corp, partnership, estate, or trust is treated as owned proportionately by its shareholders, partners, or beneficiaries.
    • Rule 2: Stock owned by related family members is considered owned by the taxpayer
    • Rule 3: Stock constructively owned by Rule 1 shall be treated as actually owned by that person when applying Rule 1 or Rule 2 in other situations, but Rule 2 isn’t applied in this manner. [Example Chad is attributed his wife’s 20% stock interest, but this interest would not be attributed to Chad’s sister]
  4. How are sales between related parties that result in a gain treated for tax purposes?
    • Capital gains taxes are imposed on all sales of NON-depreciable property (such as land) between all related parties EXCEPT
    • Husband and wife (the basis merely transfers) OR an individual and a 50%+ controlled corp or partnership (because gain is taxed as ordinary income) -- you're basically selling the item to yourself
  5. How are sales between related parties that result in a loss treated for tax purposes?
    Losses are disallowed even if the transaction was at arms-length, but the loss could adjust the basis (deferred loss)
  6. How is the basis of a related party sale determined? What is the holding period?
    • The 1st relative sells the property to the 2nd relative. Basis is determined when the 2nd relative sells the asset to an unrelated party.
    • Gain: The sales price exceeds the 1st relative’s basis
    • Loss: If the 2nd relative purchased for less than the 1st relative (a deferred loss), the final sale basis is the 2nd relative’s purchase price
    • No Gain or Loss: When the final sale price is between the 1st relative’s original purchase price and the 2nd relative’s purchase price from the 1st relative.
    • [Look at the chart on R3-48]
    • Holding Period: When party #2 purchased the item.
  7. Who is included in the definition of related parties with regard to below-market loans?
    • employer to employee
    • ind contractor and his employer
    • corp and shareholder
    • loans to a qualified continuing care facility
  8. What is the de minimis exception for a loan between related parties?
    If the loan is <$10,000
  9. What is the special rule imputed interest regarding gift loans between individuals?
    • If the loan is >/= $100,000, the inputed interest is determined as the lesser of the
    • ** Actual imputed interest OR
    • ** Net investment income. If net investment income <$1000 then imputed interest = $0
  10. Determine Kathy’s ownership in ABC Co using the following: She owns 80% of Z-Corp which in turn owns 30% of ABC Corp.
    • Kathy’s ownership is proportional to Z-Corp’s ownership b/c she owns >50% of Z-Corp
    • 80% x 30% = 24% ownership of ABC Corp
  11. True / False: The constructive ownership rules determine how much tax the taxpayer owes.
    • False
    • It determines if the transaction is regarded as a “related party”
    • This may eventually affect taxes owed, but it’s NOT the reason for the calculation
  12. What is the deduction from a loss in a related party transaction?
    Losses from related party transactions are not deductible.
  13. True / False: Step-siblings are counted as a related party.
    False
Author
BethM
ID
334624
Card Set
REG_3_04
Description
Becker Review 2017
Updated