Bank Corp.'s voting stock is owned by the following individuals: Farber, 25%; Farber's mother, 15%;

Farber's father, 40%; and Grosset, an unrelated person, 20%. Farber's sister sold equipment to Bank at a

loss. For the purposes of determining whether the sister's loss is deductible under the related party rules,

what percentage of Bank's stock, if any, does the sister constructively own?

A. 0%

B. 25%

C. 55%

D. 80%

Question

Business

Birdy

7 November, 15:58

Bank Corp.'s voting stock is owned by the following individuals: Farber, 25%; Farber's mother, 15%;

Farber's father, 40%; and Grosset, an unrelated person, 20%. Farber's sister sold equipment to Bank at a

loss. For the purposes of determining whether the sister's loss is deductible under the related party rules,

what percentage of Bank's stock, if any, does the sister constructively own?

A. 0%

B. 25%

C. 55%

D. 80%

+4

Answers (1)

Know the Answer?

Caroline Mcguire · Answer 1

D) 80%

Explanation:

IRS Section 267 (c) (4) establishes that the sister will be considered as constructive owner of the stock that her family owns. Family is defined as brothers (25%), sisters, spouse, ancestors (father 40% and mother 15%), children, and grandchildren.

In this case, Farber's sister would constructively own 25% + 40% + 15% = 80% of the bank's stocks.