What are the tax planning implications of siblings not being included as family members in Section 179?
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Siblings are not included as “family members” for purposes of Section 179 of the Internal Revenue Code. This exclusion has important tax planning implications, especially in the context of related-party transactions and the eligibility of property for the Section 179 expensing election.
1. Definition of Family for Related-Party Rules
2. Implications for Acquisitions Between Siblings
- Eligible Purchases: If a taxpayer acquires property from a sibling, that property is not disqualified from Section 179 expensing solely due to the familial relationship. This is because, for Section 179, siblings are not considered related parties.
- Contrast with Other Family Members: If the same property were acquired from a spouse, parent, child, or grandchild, it would be disqualified from Section 179 expensing, as these are included in the definition of family for Section 179 purposes.
3. Tax Planning Opportunities
- Section 179 Expensing Available: Taxpayers can purchase qualifying property from a sibling and still claim the Section 179 deduction, provided all other requirements are met (e.g., the property is acquired by purchase, is used in an active trade or business, and is not otherwise disqualified).
- Not Available for Other Family Members: Purchases from parents, children, or grandchildren are not eligible for Section 179 expensing due to the related-party rules.
4. Comparison to Other Code Sections
- Section 267: For loss disallowance and other related-party rules, siblings are included as related parties. However, Section 179 specifically narrows the family definition, excluding siblings.
- Section 382: Similarly, for purposes of Section 382 (ownership change rules), siblings are not included as family members, which can affect the aggregation of ownership for loss limitation purposes.
5. Practical Example
Suppose Taxpayer A and Taxpayer B are siblings. Taxpayer A sells a piece of equipment to Taxpayer B, who uses it in an active trade or business. Taxpayer B may elect to expense the cost of the equipment under Section 179, assuming all other requirements are satisfied, because the purchase is not from a related party as defined for Section 179 purposes.
6. Planning Cautions
- Other Related-Party Rules: While siblings are not related for Section 179, they are related for other purposes (e.g., Section 267 loss disallowance), so care must be taken to consider the broader tax context.
- Anti-Abuse Provisions: The IRS may scrutinize transactions between siblings if there is evidence of tax avoidance or lack of economic substance, even if the technical related-party rules do not apply.
7. Summary Table of Family Definitions
8. Conclusion
The exclusion of siblings from the definition of family for Section 179 purposes creates a unique planning opportunity: property acquired from a sibling is not subject to the related-party disqualification for Section 179 expensing. This can be advantageous in structuring business asset acquisitions within families, but practitioners should remain mindful of the different definitions of “family” across the Code and the potential application of other anti-abuse rules.
If you have a specific transaction in mind, further details may be needed to assess all relevant tax consequences.
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