The Internal revenue code has a dizzying array of related party rules designed to prevent family members and other related parties from manipulating the tax code in order to gain an advantage not available to unrelated parties. This chapter explores the rules that prohibit these manipulations and also create traps for the unwary family owners and closely held businesses. This includes the denial of losses between related parties, the denial of the accrual of expenses between related businesses or businesses and their owners and family, the resale of property originally sold to a related party soon after the original sale, corporate redemptions avoiding dividend treatment where related parties do not give up a meaningful amount of stock or control and rules preventing valuation manipulations in the transfer tax area.
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