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Gift out and back

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S

Simba

Guest
Tax gurus,

Say that the current stock price is really low, my wife and I gift to a foreign couple stocks worth of $40K. The stocks now are still mostly capital gains. The couple are in a country with almost no or very low capital gain taxes. If some time later, the stocks appreciate to $80K. They sell them and give us back a portion or all. Will IRS be angry about that? If not, is it a good strategy to reduce capital gain taxes?

Regards!

-Simba

 


L

loku

Guest
Gift v sale

There is a rule in taxation, that if a series of transactions are used instead of a direct transaction, the IRS will treat the series as one transaction. In your case, that would mean that the IRS, if they knew about the transactions, would probably treat your transaction as a taxable exchange of the stock by you for the amount that you eventually get from the deal. The gift would not be considered a gift; it would be a taxable exchange.

A gift is a transfer of the entire interest in property for no consideration, and with no promise to pay consideration in the future.

So, to answer your question more directly, yes, the IRS would be angry about it if they come to find out about it.
 
S

Simba

Guest
Re: Gift vs sell

Hi luko,

Thanks for your insight in this subject. When possible, could you cite me the actual section of the tax law regarding the issue? I'll do a tax law search as well.

Take care.

Simba
 
L

loku

Guest
Authority for step doctrine.

The following is from CCH material:

The essence of the step transaction doctrine is that an integrated transaction must not be broken into independent steps or, conversely, that the separate steps must be taken together in attaching tax consequences.136 The step transaction doctrine treats an interrelated series of transactions together as component parts of an overall plan, rather than treating each transaction in isolation.137

136 King Enters, Inc v US, 418 F2d 511 (Ct Cl 1969), 69-2 USTC ¶9720 ; see Helvering v Alabama Asphaltic Limestone Co, 315 US 179 (1942), 62 S Ct 540, 42-1 USTC ¶9245; Helvering v New Haven and ShoreLine RR Co, Inc, 121 F2d 985 (2d Cir 1941), 41-2 USTC ¶9600, cert denied 315 US 803; Thurber v Commr, 84 F2d 815 (1st Cir 1936), 36-2 USTC ¶9420 .

137 Brown v US, CA-6, 86-1 USTC ¶9190, 782 F2d 559; Security Industrial Insurance Co. v US, CA-5, 83-1 USTC ¶9320, 702 F2d 1234; Crenshaw v US, CA-5, 71-2 USTC ¶9698, 450 F2d 472, cert. denied 408 US 923.
 
S

Simba

Guest
Thanks, Luku. Time for me to do some reading.
Take care.
-Simba
 

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