Related Party Notes and Transactions: Section 267, Imputed Interest, Disallowed Losses, and Like-Kind Exchanges

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Wednesday, December 28, 2022

Recorded event now available

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This course will examine the complexities of related party transactions for tax advisers working with closely held businesses and their owners. The panelist will explain when imputed interest is required, when it is recognized by the payor and payee, when loss deductions are disallowed versus deferred, and steps tax professionals can take to identify and properly report these affiliated transactions.

Description

IRC Section 267(a)(1) states, "No deduction shall be allowed in respect of any loss from the sale or exchange of property, directly or indirectly, between persons specified in any of the paragraphs of subsection (b)... ." IRC Section 267(b) includes family members, individuals owning more than 50 percent of an entity's stock--directly or indirectly--and a fiduciary or grantor of a trust. These rules disallow loss deductions on otherwise bona fide, arms-length transactions between specific related parties.

Loans between owners and their businesses have always been prevalent. With the steep rise in interest rates, mandated related party interest amounts that could be deemed immaterial in the past are no longer. More concerning than the imputed income that could be assessed is the worry that loans could be reclassified as dividends or disproportionate distributions. Tax practitioners working with closely held businesses need to thoroughly understand the workings and requirements of IRC Section 267 and its interplay with Section 7872 for related party transactions.

Listen as Damien Falato, CPA, MST, CGMA, Tax Partner at Paresky Flitt & Company, explains references to Section 267 in the Code and how it alters loans, sales, and other undertakings between related parties.

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Outline

  1. Related parties and IRC Section 267
  2. Related parties under IRC Section 267(b)
  3. Related party loans
    1. Imputed interest
    2. Interplay with IRC Section 7872
    3. Application of NIIT, IRC Section 1411
    4. Ramifications of noncompliance
  4. Related party sales
    1. Loss disallowance
    2. Examples
  5. Other transactions
    1. Installment sales
    2. Involuntary conversions
    3. Like kind exchanges
    4. Other

Benefits

The panelist will cover these and other key issues:

  • When imputed interest is required to be assessed between related parties
  • How is the gain calculated on a subsequent sale of an asset when a loss was disallowed initially under Section 267?
  • When is interest income and expense between related parties recognized by the payor and payee?
  • What relationships constitute associated parties under Section 267(b)?
  • How are like kind exchanges and installment sales affected when between related parties?

Faculty

Clements, Michael
Michael A. Clements, CPA, CVA, MST
Partner
Paresky Flitt & Company

Mr. Clements brings more than 20 years of experience providing accounting and tax services to privately owned...  |  Read More

Falato, Damien
Damien Falato, CPA, MST, CGMA
Tax Partner
Paresky Flitt & Company

Mr. Falato has over fifteen years of public accounting experience, and is licensed as a CPA in MA & NJ. His...  |  Read More

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