Transactions Between Related Taxpayers

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Transactions Between Related Taxpayers

Under section 267, a trust that uses the accrual method of accounting may only deduct business expenses and interest owed to a related party in the year the payment is included in the income of the related party. For this purpose, a related party includes:

  1. A grantor and a fiduciary of any trust;

  2. A fiduciary of a trust and a fiduciary of another trust, if the same person is a grantor of both trusts;

  3. A fiduciary of a trust and a beneficiary of such trust;

  4. A fiduciary of a trust and a beneficiary of another trust, if the same person is a grantor of both trusts;

  5. A fiduciary of a trust and a corporation more than 50% in value of the outstanding stock of which is owned, directly or indirectly, by or for the trust or by or for a person who is a grantor of the trust; and

  6. An executor of an estate and a beneficiary of that estate, except for a sale or exchange to satisfy a pecuniary bequest (that is, a bequest of a sum of money).