Category: Corporations; Deductions & Credits
Subject: Section 179
Title: Purchase of Assets from Related Parties
IRC Sections: 179
Filename: 1216.html
Date Produced: 03/95

Copyright 1998, The Tax Resource Group. All rights reserved. Telephone 800-578-3498. Internet: www.taxresourcegroup.com

Facts
Two corporations, Corporation A and Corporation B, are each 100% owned by two individuals. Corporation A plans to sell equipment to Corporation B.

Issue
Is the purchase of equipment by Corporation B eligible for the Section 179 expensing election?

Answer
No, Section 179 is prohibited on purchases between certain related parties.

Discussion
The expensing election under Section 179(a) is available only for Section 179 property as defined under Section 179(d). Section 179(d)(2) provides among other things that eligible property must be purchased. The term purchase is defined under Section 179(d)(2) and excludes property purchased from a related party as defined in Sections 267 or 707(b).

Section 267(b)(3) provides that two corporations are related parties if they are part of the same controlled group as defined in Sections 267(f) and 1563(a). Ultimately, if more than 50% of the voting control and the stock value of two corporations is owned by the same person(s), the two corporations are part of the same controlled group for purposes of Section 267.

100% of the stock of both Corporation A and Corporation B is owned by the same two people. Accordingly, through application of Sections 179(d)(2), 267(b)(3), 267(f), and 1563(a), the purchase of equipment by Corporation B from Corporation A will not be eligible for the Section 179 expensing election.