Two women are donating kidneys to each other's husbands. The protean Dr. Maule thinks that they have a problem (aside from the one-kidney thing): they may have taxable income from the swap:
The exchange is not a gift because they each get something in return. Each has a basis of zero in the exchanged kidney. Each has an amount realized equal to the fair market value of a kidney. The like-kind nonrecognition rules do not apply because it's not a trade, business, or investment activity. No other non-recognition provisions are relevant. There's no exclusion applicable to the transaction.
Of course, there remains one helpful tax planning option: divorce. If they swap husbands, then the transaction should be sheltered by Section 1041, which exempts from gross income transfers of property between spouses or incident to a divorce. A simple switch of husbands will make the whole thing non-taxable. Sure, there are non-tax reasons that come into play, but if the wives are close enough to swap kidneys, maybe something can be worked out.
Dr. Maule doesn't address the tax issues arising out of kidney theft, a common imaginary problem for traveling salesmen, like the poor guy in the adjacent photo.
The items included in the Tax Update Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation.
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not necessarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to