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THE TAX LAW: WHERE HAVING THE SAME MAMA DOESN'T MEAN YOU'RE RELATED
January 11, 2006
One of the wonders of the tax law is its bewildering array of rules governing transactions between related parties. One set of rules says that if you sell something to your sibling for less than you paid for it, you can't deduct the loss. Another set of rules says that your sibling isn't your relative when dealing with corporate restructurings. And unfortunately for the Garber brothers, blood isn't thicker than water in this case.
The tax law (Section 382) says that corporate loss carryforwards are limited when the corporation changes hands. Some sales between relatives don't count, but sales between siblings do. Earlier this week the Federal Fifth Circuit Court of Appeals affirmed a Tax Court rule that having the same daddy doesn't make you a related party for the corporate loss carryforward rules.
You can get the details of the case here and here.
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