Which of the following is true with respect to the related party rules? A. A tax

Question

Which of the following is true with respect to the related party rules? A. A taxpayer's uncle is a related party for purposes of Section 267. B. Bill sells stock to his sister for a $3,000 loss. Bill can deduct the loss on his tax return. C. A disallowed loss on a related party transaction can be used to offset any future gain when the property is sold to an unrelated party. D. Under the constructive ownership rules of Section 267, a shareholder owns 10 percent of the stock owned by a corporation in which he or she is a shareholder. E. None of these choices are true.

Explanation / Answer

C. A disallowed loss on a related party transaction can be used to offset any future gain when the property is sold to an unrelated party.

When property is sold at a loss to a relate party, such loss is disallowed. However if the property is later sold to an unrelated party at a gain, the dissallowed loss can be used to reduce the gain but not below zero. Also if the property is subsequently sold to an unrelated party at a loss, no portion of the disallowed loss from the related party is deductible.

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