Marilyn owns land that she acquired three years ago as an investment for $250,000. Because the land has not appreciated in value as she anticipated, she sells it to her brother, Amos, for its fair market value of $180,000. Amos sells the land two years later for $240,000.
- Explain why Marilyn’s realized loss of $70,000 ($180,000 amount realized − $250,000 adjusted basis) is disallowed at the time of the sale to her brother.
- Explain why Amos records neither a recognized gain nor a recognized loss on his sale of the land.
- How does the related-party disallowance rule affect the total gain or loss recognized by the family unit?
- Which party wins and which party loses, in a federal income tax sense?
- How could Marilyn have avoided the loss disallowance on her sale of the land?
Please provide sufficient justification by citing applicable IRS codes and tax rules. You should include a cover page and references page in APA format. Your memo should not exceed two pages.
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