Vanda Corporation sold a truck with an adjusted basis of $50,000 to Barbara for $30,000. Vanessa owns 25% of the Vanda stock. What tax issues should Vanda and Vanessa consider with respect to the sale/purchase?

Question

What will be an ideal response?

Answer 1

• What is Vanda Corporation's realized gain or loss?
• What is Vanda Corporation's recognized loss?
• Does the sale of property to a shareholder at a loss trigger the application of the Sec. 267 related party rules?
• Is Vanessa related to any other Vanda Corporation shareholders (e.g., spouses, siblings, or other entities) whose attribution of stock ownership causes her stock ownership to exceed 50% of Vanda's outstanding stock?
• If a loss is disallowed, can the transaction be restructured to permit recognition of the loss?
• What is Vanessa's basis for the truck? Does it reflect an adjustment for the disallowed loss?

The primary issue is whether Vanessa is a related party to Vanda Corporation under the Sec. 267 rules. If so, the loss on the sale of the truck is disallowed. In this case, since Vanessa does not own more than 50% of the Vanda stock, she is not a related party, and Vanda may deduct a $20,000 ($50,000 - $30,000) loss. The loss is a Sec. 1231 loss if the truck was used by Vanda in the conduct of its trade or business. However, if Vanessa's spouse, siblings, or other parties or entities related to her own more than 25% of the stock, Vanessa is deemed to own more than 50% of Vanda Corporation, and the loss will be disallowed under Sec. 267.