In determining the related parties in a transaction, you must apply the terms in Sections 267(b) and 707(b)(1). One change: Wherever 50% is referred to, you must use 20%.
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How does IRS treat a group of sellers in a related party sale?
Will the IRS treat a group of sellers collectively or individually in a related party sale? This group is comprised of separate entities that jointly own a property. They are trying to stay below the 20% threshold individually.
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These rules are pretty complex and depends on the relationships between the partners. Please refer to IRC Section 267(b) and 707(b)(1) (but use 20% vs. 50%) which outline how to test the 20%, which will generally require grouping some or all.
The 20% rule only applies if there are related parties on the opposite side of the transaction. If you have a group of related persons selling to an unrelated third party, the 20% rule will not apply to the sale. If the group is selling to a related party, the IRS will probably measure the 20% rule seller-by-seller, rather than apply as a group, unless special circumstances apply (the sellers file as a consolidated group, for instance).
The related party rule requires that you take the aggregate. Therefore, related party interests are totaled up together as one interest for purposes of the 20% test.
I am not sure there are any changes in the related party rules.
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