Tax implications of related-party transactions

Posted on Monday, November 16th, 2009 at 6:49 am    

Many companies structure their transactions to pay maximize their after-tax cash flows. However, tax avoidance strategies often have some restrictions.

For instance, to avoid some taxes, the transaction must occur as an arms-length transaction. These transactions usually take place in the open market place, in which both parties negotiate to a competitive market price.

Transactions that do not meet the arms-length transactions requirement include transactions between related parties. In such transactions, the two parties have some relationship that allows one party to negotiate a sale that would not occur in the marketplace.

The IRS will typically investigate related-party transactions to determine if they were structured in such a way that unfairly gives one party a tax advantage.

If your company has questions about tax-related transactions, contact the Des Moines business transactions lawyers of LaMarca Law Group, P.C., at (877) 327-2600.

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