Related Party Exchanges

How much do you know about the related party rule? The related party rules were enacted to prevent related parties from “cashing out” of an investment and avoiding tax if either party’s property is disposed of within two years of the exchange. reports:

A taxpayer should generally not purchase a replacement property from a related party. In Private Revenue Ruling 9748006, the IRS disallowed tax deferral to a taxpayer who purchased his mother’s property. Revenue Ruling 2002-83 also denied tax deferral treatment to an Exchanger using a Qualified Intermediary to ultimately purchase replacement property from a related party.