§267 — Losses, expenses, and interest with respect to transactions between related taxpayers

(cid:16)04T2he plan agreement states that, "[t]o the extent not superseded by the laws ofthe United States, the laws ofUtah shall be controlling in all matters relating to the Plan." Petitioners contend that Utah law excludes from the definition of "trust" a plan established for the primary purpose ofproviding employee benefits and that Utah law should control this question.

(cid:16)04T2he plan agreement states that, "[t]o the extent not superseded by the laws ofthe United States, the laws ofUtah shall be controlling in all matters relating to the Plan." Petitioners contend that Utah law excludes from the definition of "trust" a plan established for the primary purpose ofproviding employee benefits and that Utah law should control this question.

30, 1984).] The Temporary Regulation remained in force until superseded by the final regulation, section 1.267(f)-1, Income Tax Regs.

The 1984 temporary regulation was in force until superseded by the final regulation, section 1.267(f)-1, Income Tax Regs., July 18, 1995.

We hold, however, that Holdings is not entitled to deduct this claimed loss for two factuallyrelated and overlapping reasons: First, B&C III did not actually assume the benefits and ¹6The Commissioner has not invoked application ofsection 267 or section 707(a)(2)(B) to the intrafamilytransactions at issue.

Thus, pursuant to section 267(a)(2), the royalty fees would not be deductible to PCSC for any ofthose years.

* * * * * * * (5) Related persons.--A person shall be treated as related to another person if the relationship between such persons would result in the disallowance of losses under section 267 o¶ 707(b) (but, in applying section 267(b) and (c) for purposes of this section, paragraph (4) of section 267(c) shall be treated as providing that the family of an individual shall include only his spouse, ancestors, and lineal descendants).

The parties agree that section 267 requires the postponement of India Music's deductions.

at 433, we upheld the Commissioner’s use of the aggregate approach for purposes of applying section 267 (disallowance of losses between related parties).

Accordingly, we hold that interest expense allocable to the ECI of a branch of a foreign corporation is taken into account for purposes of section 884(f)(1)(B) even if the interest is rendered nondeductible by section 267.

Section 267, however, constitutes a statutory exception to any such general principle. Losses otherwise allowable under section 165 are disallowed under section 267 to prevent abuses resulting from the generation of loss deductions by persons with common economic interests. See Davis v. Commissioner, 88 T.C. 122 (1987), affd. 866 F.2d 852 (6th Cir.

nce between MGM’s basis in UA and the amount received from Tracinda for all the UA stock is hereafter called the UA Loss. TBS and respondent jointly moved to sever from the rest of the TBS case what will hereafter be described as the section 311 and section 267 issues. The parties also filed a joint motion for consolidation of docket No. 14786-96 (Tracinda) and docket No. 13977-96 (tbs). On March 11, 1997, the parties’ joint motions for issue severance and consolidation were granted. This matter

MS&P on its 2011 fiscal year tax return because Twin City is an accrual method taxpayer and should have capitalized the prepaid lease expenses. Petitioners argue that Twin City is entitled to deduct the prepayment under the related-partyprovisions ofsection 267. Whether a taxpayer is required to capitalize an expense depends on whether the expense is an ordinary and necessary business expense as defined by section 162(a) or a capital expenditure covered by section 263. The reason behind the need

MS&P on its 2011 fiscal year tax return because Twin City is an accrual method taxpayer and should have capitalized the prepaid lease expenses. Petitioners argue that Twin City is entitled to deduct the prepayment under the related-partyprovisions ofsection 267. Whether a taxpayer is required to capitalize an expense depends on whether the expense is an ordinary and necessary business expense as defined by section 162(a) or a capital expenditure covered by section 263. The reason behind the need

in Kupuohi I and a $1,502,960 adjusted basis in Kaahumanu. Times realized a $6,453,372 capital loss on the sale of Kupuohi I but did not recognize this loss on its tax return because of the restriction on transactions between related taxpayers under section 267. Times realized and recognized a $2,227,040 gain on the sale of Kaahumanu. At some point, TGE transferred Kupuohi I and Kaahumanu to Teruya. As of the date the petition was filed, Teruya still owned these properties. II. Federal Income Ta

Section 267 applies when the mismatching arises because the parties use different methods of accounting. That is not the case here. Petitioner and the Foriers are cash basis taxpayers. There is no mismatching of a deduction and inclusion due to different accounting methods. Petitioner distorts the language of section 267, arguing that such language

In the absence of similarly explicit directives in the estate tax area, we shall not apply these principles when computing the value of assets in the decedent’s estate. [Id. at 1251.] The court concluded that the decedent’s fractional interest in the subject property should be valued separately from the accompanying fractional

td. LII Laidlaw Industries, Inc. WMI Waste Management, Inc. LIIBV Laidlaw International Investments B.V. 3 In light of our decision, we need not decide whether, as respondent contends, some of the payments at issue here are not deductible because of sec. 267. - 4 - Unless otherwise indicated, section references are to the Internal Revenue Code in effect for the years in issue and Rule references are to the Tax Court Rules of Practice and Procedure. TABLE OF CONTENTS I. FINDINGS OF FACT . . . . .

Third, as a timing matter, section 267 bars PCSC's deductions for the years in issue.

The parties dispute the applicability ofsection 36(c)(3)(A)(i), which provides in material part: (A) In general.--The term "purchase" means any acquisition, but only if-- (i) the property is not acquired from a person related to the person acquiring such property * * * Section 36(c)(5) incorporates into the definition of"related persons" section 267, dealing with disallowance ofcei.tain losses.

267, which was repealed in 1984, disallowed a deduction for obligations payable to a related taxpayer if the obligation was not paid within 2-1/2 months after the end of the taxpayer’s fiscal year, and if the amounts would not be includable by the related recipient under its method of accounting for the taxable year during which the taxpayer’s

at 433, we upheld the Commissioner’s use of the aggregate approach for purposes of applying section 267 (disallowance of losses between related parties).

Section 267 Section 267 and its predecessors were enacted to correct what Congress considered the abusive and frequently employed practice of creating losses for purposes of avoiding income taxes through transactions between related persons and groups. Because of the identity of economic interests of such parties and the control taxpayers had over

Section 267 Section 267 and its predecessors were enacted to correct what Congress considered the abusive and frequently employed practice of creating losses for purposes of avoiding income taxes through transactions between related persons and groups. Because of the identity of economic interests of such parties and the control taxpayers had over

Section 267 Section 267 and its predecessors were enacted to correct what Congress considered the abusive and frequently employed practice of creating losses for purposes of avoiding income taxes through transactions between related persons and groups. Because of the identity of economic interests of such parties and the control taxpayers had over

Section 267 Section 267 and its predecessors were enacted to correct what Congress considered the abusive and frequently employed practice of creating losses for purposes of avoiding income taxes through transactions between related persons and groups. Because of the identity of economic interests of such parties and the control taxpayers had over

Section 267 Section 267 and its predecessors were enacted to correct what Congress considered the abusive and frequently employed practice of creating losses for purposes of avoiding income taxes through transactions between related persons and groups. Because of the identity of economic interests of such parties and the control taxpayers had over

Section 267 Section 267 and its predecessors were enacted to correct what Congress considered the abusive and frequently employed practice of creating losses for purposes of avoiding income taxes through transactions between related persons and groups. Because of the identity of economic interests of such parties and the control taxpayers had over

Section 267 Section 267 and its predecessors were enacted to correct what Congress considered the abusive and frequently employed practice of creating losses for purposes of avoiding income taxes through transactions between related persons and groups. Because of the identity of economic interests of such parties and the control taxpayers had over

hat some of the sales were to petitioner's sons and argues that those were not sales in the ordinary course of business.2 We disagree. Petitioner made a large economic profit on the sales to her sons. The fact that 2Respondent does not contend that sec. 267 applies to the lot petitioner sold to Trevor Hancock in 1994. -15- parties to a transfer are related does not mean the transfer was not in the ordinary course of business if the parties act at arm's length. See Beveridge v. Commissioner, 10 T

Section 267 Section 267 and its predecessors were enacted to correct what Congress considered the abusive and frequently employed practice of creating losses for purposes of avoiding income taxes through transactions between related persons and groups. Because of the identity of economic interests of such parties and the control taxpayers had over

Section 267 Section 267 and its predecessors were enacted to correct what Congress considered the abusive and frequently employed practice of creating losses for purposes of avoiding income taxes through transactions between related persons and groups. Because of the identity of economic interests of such parties and the control taxpayers had over

Section 267 Section 267 and its predecessors were enacted to correct what Congress considered the abusive and frequently employed practice of creating losses for purposes of avoiding income taxes through transactions between related persons and groups. Because of the identity of economic interests of such parties and the control taxpayers had over

Section 267 Section 267 and its predecessors were enacted to correct what Congress considered the abusive and frequently employed practice of creating losses for purposes of avoiding income taxes through transactions between related persons and groups. Because of the identity of economic interests of such parties and the control taxpayers had over

Section 267 Section 267 and its predecessors were enact ad to correct what Congress considered the abusive and frequently employed practice of creating losses for purposes of avoiding income taxes through transactions between related persons and groups. Because of the identity of economic interests of such pa ties and the control taxpayers had over

Section 267 Section 267 and its predecessors were enacted to correct what Congress considered the abusive and frequently employed practice of creating losses for purposes of avoiding income taxes through transactions between related persons and groups. Because of the identity of economic interests of such parties and the control taxpayers had over

Section 267 Section 267 and its predecessors were enacted to correct what Congress considered the abusive and frequently employed practice of creating losses for purposes of avoiding income taxes through transactions between related persons and groups. Because of the identity of economic interests of such parties and the control taxpayers had over

Section 267 Section 267 and its predecessors were enacted to correct what Congress considered the abusive and frequently employed practice of creating losses for purposes of avoiding income taxes through transactions between related persons and groups. Because of the identity of economic interests of such parties and the control taxpayers had over

Section 267 Section 267 and its predecessors were enacted to correct what Congress considered the abusive and frequently employed practice of creating losses for purposes of avoiding income taxes through transactions between related persons and groups. Because of the identity of economic interests of such parties and the control taxpayers had over

Section 267 Section 267 and its predecessors were enacted to correct what Congress considered the abusive and frequently employed practice of creating losses for purposes of avoiding income taxes through transactions between related persons and groups. Because of the identity of economic interests of such parties and the control taxpayers had over

Section 267 Section 267 and its predecessors were enacted to correct what Congress considered the abusive and frequently employed practice of creating losses for purposes of avoiding income taxes through transactions between related persons and groups. Because of the identity of economic interests of such parties and the control taxpayers had over

Section 267 Section 267 and its predecessors were enacted to correct what Congress considered the abusive and frequently employed practice of creating losses for purposes of avoiding income taxes through transactions between related persons and groups. Because of the identity of economic interests of such parties and the control taxpayers had over

Section 267 Section 267 and its predecessors were enacted to correct what Congress considered the abusive and frequently employed practice of creating losses for purposes of avoiding income taxes through transactions between related persons and groups. Because of the identity of economic interests of such parties and the control taxpayers had over

Section 267 Section 267 and its predecessors were enacted to correct what Congress considered the abusive and frequently employed practice of creating losses for purposes of avoiding income taxes through transactions between related persons and groups. Because of the identity of economic interests of such parties and the control taxpayers had over

Section 267 Section 267 and its predecessors were enacted to correct what Congress considered the abusive and frequently employed practice of creating losses for purposes of avoiding income taxes through transactions between related persons and groups. Because of the identity of economic interests of such parties and the control taxpayers had over

Section 267 Section 267 and its predecessors were enacted to correct what Congress considered the abusive and frequently employed practice of creating losses for purposes of avoiding income taxes through transactions between related persons and groups. Because of the identity of economic interests of such parties and the control taxpayers had over

Section 267 Section 267 and its predecessors were enacted to correct what Congress considered the abusive and frequently employed practice of creating losses for purposes of avoiding income taxes through transactions between related persons and groups. Because of the identity of economic interests of such parties and the control taxpayers had over

Section 267 Section 267 and its predecessors were enacted to correct what Congress considered the abusive and frequently employed practice of creating losses for purposes of avoiding income taxes through transactions between related persons and groups. Because of the identity of economic interests of such parties and the control taxpayers had over

Section 267 Section 267 and its predecessors were enacted to correct what Congress considered the abusive and frequently employed practice of creating losses for purposes of avoiding income taxes through transactions between related persons and groups. Because of the identity of economic interests of such parties and the control taxpayers had over

Section 267 Section 267 and its predecessors were enacted to correct what Congress considered the abusive and frequently employed practice of creating losses for purposes of avoiding income taxes through transactions between related persons and groups. Because of the identity of economic interests of such parties and the control taxpayers had over

Section 267 Section 267 and its predecessors were enacted to correct what Congress considered the abusive and frequently employed practice of creating losses for purposes of avoiding income taxes through transactions between related persons and groups. Because of the identity of economic interests of such parties and the control taxpayers had over

mount of the commission was ascertainable and that the expense had been "incurred", are not relevant to a cash basis entity such as InTex. Even if InTex used the accrual method of accounting and met all other requirements for accrual of the expense, sec. 267 would operate to delay a deduction at least until Mr. Haymond, as a related taxpayer on the cash method of accounting, included the commission in income. - 10 - Harchester Realty Corp. v. Commissioner, supra; cf. Vaira v. Commissioner, supra

Respondent determined that section 267 precluded the deductibility of the claimed loss.

Because the accrued interest has not been paid to the related party, petitioner contends that section 267 prevents its deduction.

t of Meek's grandchildren and that McCormick and Furman were the trustees of the trust. As trustees, they are fiduciaries under section 7701(a)(6). The issue before us is only whether Meek is the settlor of the trust. 2 The terms grantor, as used in sec. 267, and settlor, as used in the trust document, both refer to the creator of a trust. See Black's Law Dictionary at 700, 1373 (6th ed. 1990). We view them as synonymous. - 6 - We determine property rights of the parties under State law (in this

st in property.--The term "term interest in property" has the meaning given such term by section 1001(e)(2). (B) Related person.--The term "related person" means any person bearing a relationship to the taxpayer described in subsection (b) or (e) of section 267. - 9 - Section 167(e)(5)(A) refers to section 1001(e)(2)6 for the definition of "term interest in property", and section 167(e)(5)(B) refers to section 267(b)7 for the definition of a "related person". 6 Sec. 1001(e)(2) provides: Term int

- 12 - met, and section 267 would prevent the deduction of the $168,099 in issue.

892 (1940), involving the loss disallowance rule ofsection 267 applicable to related party transactions.

Respondent concedes that petitioner is allowed a depreciation deduction under section 267 of $10,460 for 2007.

Respondent concedes that petitioner is allowed a depreciation deduction under section 267 of $10,460 for 2007.

Valuation As discussed above, there are two types ofcontrol within the meaning of section 1563(a)(1) as modified by section 267 that would cause Fish Holdings and FishNet Security to qualify as related persons for purposes ofsection 1239.

In general, a taxpayer is generally deemed to have used a dwelling unit for personal purposes if, during any part ofa day, a member ofthe taxpayer's family (as defined in section 267(ó)(4))uses the unit for personal purposes.

As such §267 limits the corporate deduction to the amounts actually received and reported by the controlling shareholder. As - 24 - [*24] such, the corporation should be denied $229,429 for 2004 and $611,454 and 2005. After considering all ofthe issues in the two related cases, the Appeals officer concluded that, in order to have consistent treatment ofth

eir owners"), 301.7701-3(b)(1)(ii)(providing that a domestic entity is "[d]isregarded as an entity separate from its owner ifit has a single owner."), Proced. & Admin. Regs. -14- the sale ofits;partnership interest in Group would be disalloweduñder section 267. Specifically, the concern appears to havebeen that-Family and Family Trust wouldbe deemed "related" within:the nieaning ofsection'267. After discussions between Mr. Rawls and reßresentatites from Heritage and Lewis Rice; it was decidedto

Falk raised concerns that section 267 (relating to losses, expenses, and interest with respect to transactions between related parties) could potentially apply to disallow the loss as a sale between related parties.

-likely-than-not” opinion letter for the desired tax consequences. Lewis Rice believed that there was a greater-than-50% likelihood that the short-term loss claimed by Family on the sale of its partnership interest in Group would be disallowed under section 267. Specifically, the concern appears to have been that Family and Family Trust would be deemed “related” within the meaning of section 267. After discussions between Mr. Rawls and representatives from Heritage and Lewis Rice, it was decided

Commissioner, supra at 440; see also Rule 142(a).

Times realized a $6,453,372 capital loss on the sale of Kupuohi I but did not recognize this loss on its tax return because of the restriction on transactions between related taxpayers under section 267.5 Times realized and recognized a $2,227,040 gain on the sale of Kaahumanu.

In Jerome Castree Interiors, Inc., which involved section 267 and transactions between related taxpayers, the taxpayer- corporation’s president and his brother, both cash basis taxpayers, reported bonuses that had accrued in the preceding year on their tax returns for the year in which the bonuses were paid.

1 Petitioners alleged in their petition that respondent had disallowed the disputed amounts “on grounds including IRC Sections 267, 404 and 461", and respondent in answer admitted this allegation. Respondent in brief has abandoned his reliance upon sec. 267 to support his determination and relies solely upon secs. 404(d) and 461. - 7 - liability arises out of a taxpayer’s receipt of services performed by another person, economic performance generally occurs as the services are performed. Sec. 4

5. Petitioners alleged in their petition that respondent had disallowed the disputed amounts “on grounds including IRC Sections 267, 404 and 461”, and respondent in answer admitted this allegation. Respondent in brief has abandoned his reliance upon sec. 267 to support his determination and relies solely upon secs. 404(d) and 461. We also believe that sec. 1.461-1(a)(2)(iii)(A), Income Tax Regs., is relevant to our discussion. As stated therein: (A) If any provision of the Code requires a liabil

se in Burien Nissan’s reported loss for the year. The increased loss was due to the following reported adjustments: Johnston Reverse Total Accrue Family Employment Tax Year Additional Partnership Employment Award Prior Adjustment Ransopher Interest Sec. 267 Award Amortization Expense/ Year Interest Adjustment Adjustment Adjustment Expenses (income) 1989 -- $1,731 -- -- -- $1,731 1990 -- (65) -- -- -- (65) 1991 -- 9,045 $(1,438) -- -- 7,607 1992 -- 4,457 (2,497) -- -- 1,960 1993 -- 5,917 29,736 -

se in Burien Nissan’s reported loss for the year. The increased loss was due to the following reported adjustments: Johnston Reverse Total Accrue Family Employment Tax Year Additional Partnership Employment Award Prior Adjustment Ransopher Interest Sec. 267 Award Amortization Expense/ Year Interest Adjustment Adjustment Adjustment Expenses (income) 1989 -- $1,731 -- -- -- $1,731 1990 -- (65) -- -- -- (65) 1991 -- 9,045 $(1,438) -- -- 7,607 1992 -- 4,457 (2,497) -- -- 1,960 1993 -- 5,917 29,736 -

2d 497, 499, § 267, under the heading “Vendor and Purchaser,” as follows: “The purchaser, however, acquires an equitable title or interest in the property from the date of the contract, or in any event from the time when he enters into possession, until his interest ripens into a legal title by an absolute conveyance or, where the transaction consists in a conv

areholders and in some instances the shareholders’ father or children. The below-market loans were being made within a tightly controlled conglomeration of Tharp family members and entities 9 Respondent does not rely on the attribution provisions of sec. 267 or 318 for his interpretation of the language of sec. 7872. Respondent does, however, ask us to focus on the fact that petitioner and the entities to which it made loans were all owned and controlled by persons having a close family relation

icipant; and (ii) A deemed below-market loan made by the indirect participant to the borrower.” Sec. 1.7872-4(g)(1)(i) and (ii), Proposed Income Tax Regs., 50 Fed. Reg. 35561 (Aug. 20, 1985). Respondent does not rely on the attribution provisions of sec. 267 or 318 for his interpretation of the language of sec. 7872. Respondent does, however, ask us to focus on the fact that petitioner and the entities to which it made loans were all owned and controlled by persons having a close family relation

ivalents, and marketable securities in the amounts of $2,792,123 and $3,129,900, respectively. Mr. and Mrs. Heitz contend that these liquid 6 Most of the cases discussing the doctrine of constructive receipt with respect to interest income apply to sec. 267. In the cited case, the Commissioner was arguing that there was no constructive receipt of interest income by the employee in order to deny the employer-corporation the corresponding deduction. - 29 - assets were needed for an upcoming plant

ivalents, and marketable securities in the amounts of $2,792,123 and $3,129,900, respectively. Mr. and Mrs. Heitz contend that these liquid 6 Most of the cases discussing the doctrine of constructive receipt with respect to interest income apply to sec. 267. In the cited case, the Commissioner was arguing that there was no constructive receipt of interest income by the employee in order to deny the employer-corporation the corresponding deduction. - 29 - assets were needed for an upcoming plant

t's contention that such payments constituted acts of self-dealing, whereby petitioner, a "fiduciary", was dealing with 15(...continued) 4975(e)(2)(H) solely due to his "shareholding" in Worldwide as the constructive attribution rules provided under sec. 267 are applicable only to sec. 4975(e)(2)(E)(i) and (G)(i). Sec. 4975(e)(4). 16 Ordinarily, controlling effect will be given to the plain language of a statute unless to do so would produce absurd or futile results. Rath v. Commissioner, 101 T.

rldwide until after the stock was issued to IRA #1. Sec. 4975(e)(2)(H). Furthermore, petitioner was not a disqualified person under sec. 4975(e)(2)(H) solely due to his “shareholding” in Worldwide as the constructive attribution rules provided under sec. 267 are applicable only to sec. 4975(e)(2)(E)(i) and (G)(i). Sec. 4975(e)(4). Ordinarily, controlling effect will be given to the plain language of a statute unless to do so would produce absurd or futile results. Rath v. Commissioner, 101 T.C/1