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In various sections, the Tax Code creates presumptions that the members of a family share a common interest and addresses that presumption. 1
- We may choose to ignore every tax aspect of a transaction between family members. In many respects, § 1041 (discussed infra) has this effect.
- We may curtail the tax advantages of transactions where close relationships could lead to abuse.
- Read §§ 267(a)(1), 267(b)(1), 267(c)(2), 267(c)(4), 267(d). 2
Consider:
1. Taxpayer owned Greenacre. Taxpayer’s adjusted basis in Greenacre was $25,000. Taxpayer sold Greenacre to his grandson for $15,000, its fmv.
- How much loss may Taxpayer deduct under § 165(a and c(2))? See §§ 267(a)(1), 267(b)(1), 267(c)(4).
- What is grandson’s basis in Greenacre? See § 1012.
- Now suppose that Grandson sold Greenacre to Clive for –
- $10,000. How much loss could Grandson deduct?
- $20,000. How much gain (loss?) must Grandson report? See § 267(d).
- $30,000. How much gain must Grandson report? See § 267(d).
- Have we seen this pattern of gain and loss recognition before?
- Would your answers be different if Taxpayer had sold Greenacre to his uncle? – grandmother? – nephew? – the daughter of his step-mother?
- Would your answers be different if Taxpayer had sold Greenacre to his wife? See § 1041.
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