Section 267(b)(1) Related Family Members

Family members cheers


Section 267(b) is referenced in 79 sections throughout the Internal Revenue Code as well as 175 state law provisions for the definition of “related taxpayers.” This article focuses exclusively on Section 267(b)(1); disqualified family members.

Under Section 267, when a taxpayer sells or transfers property at a loss to a person who qualifies as a related family member under Section 267(b), Section 267(a) prohibits the recognition of the loss.

[1] The fact that a transaction may have been bona fide and at fair market value is immaterial.[2] In addition, the rule prohibiting a loss on a sale or transfer is not dependent upon whether the transfer is a voluntary one.[3] In Zacek v. Commissioner, for example, the Tax Court denied a deduction to a party for the loss he sustained in a foreclosure proceeding and which resulted in a judicial sale of his property to members of his family.[4]

Disqualified Family Relationships

Certain family members qualify under Section 267(b) as being related parties.[5] Such family members are the same as those defined within Section 267(c)(4) for purposes of determining when a person constructively owns stock in a corporation.[6]

They include a taxpayer’s brothers and sisters, spouse, ancestors, and lineal descendants.[7] The brothers and sisters may be either whole-blood or half-blood siblings.[8]

The term “ancestors” includes parents and grandparents.[9] The term “lineal descendants” includes children and grandchildren.[10] In addition, when determining whether any of these relationships exist, Reg. § 1.267(c)-1(a)(4) gives full effect to any legal adoption.[11]

Permissible Family Relationships

The only family relationships that qualify under Section 267(b)(1) are those that are identified in the statute.[12] They do not include other relationships that can arise solely because of a marriage.[13] In-law relationships, for example, do not qualify as family relationships under Section 267(b)(1).[14] Stepparent relationships also do not qualify.

[15] In Revenue Ruling 71-50, for example, a taxpayer sold shares of stock at a loss to his stepmother in a bona fide transaction.[16] Neither he nor his wife had a blood relationship to the stepmother. The Service ruled that the taxpayer’s stepmother was not a member of his family within the meaning of Section 267 and therefore his deduction for the loss from the sale was not disallowed under Section 267.

[17] In DeBoer v. Commissioner, the Service recognized that a taxpayer had made a bona fide sale of an apartment house at a loss to his wife’s grandson.[18] The purchaser was the grandson of the taxpayer’s wife through a prior marriage and was not a descendant of the taxpayer nor had he at any time been adopted by the taxpayer.

The Tax Court ruled in the taxpayer’s favor, recognizing the absence of a family relationship that would preclude the deduction.[19] It held the loss deduction was unaffected by the fact the taxpayer filed a joint return with his wife who was related to the purchaser.[20]

Additional Family Relationships

Some family relationships, such as in-law relationships, are not identified in Section 267(b).[21] However, the fact that a relationship between a seller and purchaser is one that does not qualify as a family relationship under Section 267(b)(1) does not mean that a loss from a sale or transfer will inherently be recognized as a deductible loss.

[22] Section 267(a) merely prohibits the deduction of losses incurred from sales or transfers to related parties even when such losses are incurred in bona fide transactions.[23] Section 267 is not exclusive and does not otherwise authorize loss deductions.

[24] No deduction for losses arising in a transaction that is not bona fide will be allowed, for example, even if Section 267 does not apply to the transaction.[25] When “good faith and finality” are lacking in a transaction, purported losses cannot be legitimately claimed even if the particular relationship between the parties is not specifically covered by Section 267(b).[26]


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[1] IRC § 267.

[2] Estate of Johnson v. C.I.R., 42 T.C. 441 (1964), aff’d, 355 F.2d 931 (6th Cir. 1965); Herbert A. Nieman & Co. v. C.I.R., 33 T.C. 451 (1959), acq., 1965-2 C.B. 3; Kaplan v. C.I.R., 21 T.C. 134, (1953), acq. 1954-1 C.B. 5.

[3] Zacek v. C.I.R., 8 T.C. 1056 (1947).

[4] Zacek v. C.I.R., 8 T.C. 1056 (1947).

[5] IRC § 267(b)(1).

[6] IRC §§ 267(b)(1), 267(c)(4).

[7] IRC §§ 267(b)(1), 267(c)(4).

[8] IRC §§ 267(b)(1), 267(c)(4).

[9] IRC § 267(c)(4); Reg. § 1.267(c)-1(a)(4).

[10] IRC § 267(c)(4); Reg. § 1.267(c)-1(a)(4).

[11] Treas. Reg. § 1.267(c)-1(a)(4).

[12] IRC § 267(b)(1).

[13] IRC § 267(b)(1); DeBoer v. C.I.R., 16 T.C. 662 (1951), aff’d, 194 F.2d 289 (2d Cir. 1952); Topek v. C.I.R., 9 T.C. 763 (1947); Simister v. C.I.R., 4 T.C. 470 (1944).

[14] IRC § 267(b)(1); Nordling v C.I.R., 6 T.C.M. (CCH) 189 (T.C. 1947); Stamler v. C.I.R., 45 B.T.A. 37 (1941).

[15] IRC § 267(b)(1); Rev. Rul. 71-50.

[16] Rev. Rul. 71-50.

[17] Rev. Rul. 71-50.

[18] DeBoer v. C.I.R., 16 T.C. 662 (1951), aff’d, 194 F.2d 289 (2d Cir. 1952).

[19] DeBoer v. C.I.R., 16 T.C. 662 (1951), aff’d, 194 F.2d 289 (2d Cir. 1952).

[20] DeBoer v. C.I.R., 16 T.C. 662 (1951), aff’d, 194 F.2d 289 (2d Cir. 1952).

[21] IRC § 267(b).

[22] Treas. Reg. § 1.267(a)-1(c).

[23] IRC § 167(a); Treas. Reg. § 1.267(a)-1(c).

[24] Treas. Reg. § 1.267(a)-1(c).

[25] Treas. Reg. § 1.267(a)-1(c); Widener v. C.I.R., 80 T.C. 304 (1983), acq. recommended, AOD-1984-13 (1984) and acq., 1984-2 C.B.1.

[26] Johnson v. C.I.R., 24 T.C. 107 (1955), aff’d, 233 F.2d 752 (4th Cir. 1956); Williams v. C.I.R., T.C. Memo. 1960-19 (1960).

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