Related party transaction

This week, we return to two recurring themes of this blog: (I) related party transactions – specifically, transactions between a taxpayer and a corporation controlled by the taxpayer; and (II) what happens when a taxpayer does not conduct the appropriate due diligence before engaging in a transaction.

Management Agreements

Taxpayers owned two operating companies (the

Potential for Abuse

Many years ago, Congress decided that taxpayers who were “related” to one another should be required to use the same accounting method with respect to transactions between them in order to prevent the allowance of a deduction to one party (using the accrual method of accounting) without the corresponding inclusion in income

“Add-Backs”

In the course of valuing a target business, a potential buyer will want to develop an accurate picture of the target’s earnings and cash flow. In doing so, the buyer will try to normalize those earnings by “adding back” various target expenses that the buyer is unlikely to incur in the ordinary course of

Exchanges, In General

A taxpayer must recognize the gain realized by the taxpayer from the conversion of a property into cash, or from the exchange of the property for other property differing materially in kind.

Under an exception to this general recognition rule, gain is not required to be recognized if property that is held