Related-Party Sales Can Produce Unexpected Tax Results

59 Tax'n for Acountants 23 (Mar. 1997); 26 Tax'n for Lawyers 75 (Sept./Oct. 1997)

13 Pages Posted: 26 Jul 2019

See all articles by Monica Gianni

Monica Gianni

California State University Northridge

Date Written: March 1, 1997


Sales of appreciated property to a closely held business can result in extremely harsh income tax consequences to a related seller. Gain may be recharacterized from capital gain to ordinary income, and the use of the installment method to defer gain recognition may be disallowed. Even if the installment method can be used, nondeductible interest charges may be due on the deferred portion of the gain. For property that has depreciated in value, the sale to a related person may result in the loss being disallowed to the related seller. Like-kind exchange treatment also can be denied between related persons if the parties to the exchange do not hold the exchanged properties for a sufficient period following the exchange. Tax advisors absolutely must take these income tax consequences into consideration when advising clients on structuring transactions between owners and their closely held businesses or between other related persons. Failure to consider the effect of these provisions can have far-reaching adverse income tax consequences for the parties involved.

Keywords: related party sales

JEL Classification: K34

Suggested Citation

Gianni, Monica, Related-Party Sales Can Produce Unexpected Tax Results (March 1, 1997). 59 Tax'n for Acountants 23 (Mar. 1997); 26 Tax'n for Lawyers 75 (Sept./Oct. 1997), Available at SSRN:

Monica Gianni (Contact Author)

California State University Northridge ( email )

David Nazarian College of Business and Economics
18111 Nordhoff
Northridge, CA 91330-8372
United States
8186772449 (Phone)

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