If you could sell a house to your son, would you sell it a price below fair market value? Would you loan money to your sister at an interest rate lower than the market rate? You wouldn’t do these things for a stranger, but you might want to do them to help someone close to you.

Would your clients?

After all, that’s what friends and family do—help each other. But the IRS and the courts are watching.

“Congress and the IRS are concerned that related parties may engage in transactions just to reduce or avoid taxes,” says Dennis Gerschick, CPA, who teaches a CPE Link webinar on related party transactions. Congress has enacted some provisions that specifically address transactions between related parties that unrelated parties would not have engaged in. The IRS Audit Guide instructs auditors how to identify involving parties related by family or shared business interests. And the courts carefully scrutinize the facts and circumstances of intrafamily transactions.

While related parties may transact business with each other, the transactions must pass microscopic inspection by the IRS and the courts.

If you have clients engaging in related-party transactions of any kind, you may want to brush up on how these transactions should be structured, the code provisions that apply, and the tax consequences.