Page 112 - Virtual Currencies

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
exchange is a depreciable property transaction in trade, or depreciable or real property used in 2. An individual and a corporation if the indi-
or a controlled partnership transaction. a trade or business. vidual directly or indirectly owns more than
A controlled partnership transaction is a 50% in value of the outstanding stock of
Depreciable property transaction. Gain on transaction directly or indirectly between either the corporation.
the sale or exchange of property, including a of the following pairs of entities. 3. Two corporations that are members of the
leasehold or a patent application, that is depre- • A partnership and a person who directly or
ciable property in the hands of the person who indirectly owns more than 50% of the capi- same controlled group as defined in sec-
tion 267(f) of the Internal Revenue Code.
receives it is ordinary income if the transaction tal interest or profits interest in the partner-
is either directly or indirectly between any of the ship. 4. A trust fiduciary and a corporation if the
following pairs of entities. • Two partnerships, if the same persons di- trust or the grantor of the trust directly or
1. A person and the person's controlled en- rectly or indirectly own more than 50% of indirectly owns more than 50% in value of
the outstanding stock of the corporation.
tity or entities. the capital interests or profits interests in
both partnerships.
2. A taxpayer and any trust in which the tax- 5. A grantor and fiduciary, and the fiduciary
and beneficiary, of any trust.
payer (or his or her spouse) is a benefi- Determining ownership. In the transactions
ciary unless the beneficiary's interest in under Depreciable property transaction and 6. Fiduciaries of two different trusts, and the
the trust is a remote contingent interest; Controlled partnership transaction, earlier, use fiduciary and beneficiary of two different
that is, the value of the interest computed the following rules to determine the ownership trusts, if the same person is the grantor of
actuarially is 5% or less of the value of the of stock or a partnership interest. both trusts.
trust property. 1. Stock or a partnership interest directly or 7. A tax-exempt educational or charitable or-
3. An executor and a beneficiary of an estate indirectly owned by or for a corporation, ganization and a person who directly or in-
unless the sale or exchange is in satisfac- partnership, estate, or trust is considered directly controls the organization, or a
tion of a pecuniary bequest (a bequest for owned proportionately by or for its share- member of that person's family.
a sum of money). holders, partners, or beneficiaries. (How- 8. A corporation and a partnership if the
4. An employer (or any person related to the ever, for a partnership interest owned by same persons own more than 50% in
employer under rules (1), (2), or (3)) and a or for a C corporation, this applies only to value of the outstanding stock of the cor-
welfare benefit fund (within the meaning of shareholders who directly or indirectly own poration and more than 50% of the capital
section 419(e) of the Internal Revenue 5% or more in value of the stock of the interest or profits interest in the partner-
Code) that is controlled directly or indi- corporation.) ship.
rectly by the employer (or any person rela- 2. An individual is considered as owning the 9. Two S corporations if the same persons
ted to the employer). stock or partnership interest directly or in- own more than 50% in value of the out-
Controlled entity. A person's controlled directly owned by or for his or her family. standing stock of each corporation.
entity is either of the following. Family includes only siblings, half siblings, 10. Two corporations, one of which is an S
spouse, ancestors, and lineal descend-
1. A corporation in which more than 50% of ants. corporation, if the same persons own
more than 50% in value of the outstanding
the value of all outstanding stock, or a 3. For purposes of applying (1) or (2) above,
partnership in which more than 50% of the stock or a partnership interest construc- stock of each corporation.
capital interest or profits interest, is directly tively owned by a person under (1) is trea- 11. An executor and a beneficiary of an estate
or indirectly owned by or for that person. ted as actually owned by that person. But unless the sale or exchange is in satisfac-
2. An entity whose relationship with that per- stock or a partnership interest construc- tion of a pecuniary bequest.
son is one of the following. tively owned by an individual under (2) is 12. Two partnerships if the same persons di-
a. A corporation and a partnership if the not treated as owned by the individual for rectly or indirectly own more than 50% of
reapplying (2) to make another person the
the capital interests or profits interests in
same persons own more than 50% in constructive owner of that stock or part- both partnerships.
value of the outstanding stock of the nership interest.
corporation and more than 50% of the 13. A person and a partnership if the person
capital interest or profits interest in the directly or indirectly owns more than 50%
partnership. Nondeductible Loss of the capital interest or profits interest in
b. Two corporations that are members of A loss on the sale or exchange of property be- the partnership.
the same controlled group as defined Partnership interests. The nondeductible
in section 1563(a) of the Internal Rev- tween related persons is not deductible. This loss rule does not apply to a sale or exchange
applies to both direct and indirect transactions,
enue Code, except that “more than of an interest in the partnership between the re-
50%” is substituted for “at least 80%” but not to distributions of property from a corpo- lated persons described in (12) or (13) above.
ration in a complete liquidation. For the list of re-
in that definition. lated persons, see Related persons next.
c. Two S corporations, if the same per- Controlled groups. Losses on transactions
sons own more than 50% in value of If a sale or exchange is between any of between members of the same controlled group
the outstanding stock of each corpo- these related persons and involves the described in (3), earlier, are deferred rather
ration. lump-sum sale of a number of blocks of stock or than denied.
For more information, see section 267(f) of
d. Two corporations, one of which is an pieces of property, the gain or loss must be fig- the Internal Revenue Code.
ured separately for each block of stock or piece
S corporation, if the same persons of property. The gain on each item is taxable.
own more than 50% in value of the The loss on any item is nondeductible. Gains Ownership of stock or partnership inter-
outstanding stock of each corpora- from the sales of any of these items may not be ests. In determining whether an individual di-
tion. offset by losses on the sales of any of the other rectly or indirectly owns any of the outstanding
items. stock of a corporation or an interest in a partner-
Controlled partnership transaction. A gain ship for a loss on a sale or exchange, the fol-
recognized in a controlled partnership transac- Related persons. The following is a list of re- lowing rules apply.
tion may be ordinary income. The gain is ordi- lated persons.
nary income if it results from the sale or ex- 1. Stock or a partnership interest directly or
change of property that, in the hands of the 1. Members of a family, including siblings, indirectly owned by or for a corporation,
party who receives it, is a noncapital asset such half siblings, spouse, ancestors (parents, partnership, estate, or trust is considered
as trade accounts receivable, inventory, stock grandparents, etc.), and lineal descend- owned proportionately by or for its
ants (children, grandchildren, etc.). shareholders, partners, or beneficiaries.
Chapter 2 Ordinary or Capital Gain or Loss Page 21