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Arm's Length Transaction

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Arm's Length Transaction
A transaction in which the buyer and the seller have no significant, prior relationship. In an arm's length transaction, neither party has an incentive to act against his/her own interest. That is, the seller seeks to make the price as high as he/she can, and likewise the buyer seeks to make it as low as he/she can. The negotiations for an arm's length transaction result in the arm's length price, which is almost always close to the market value of the asset being sold. The term is often used in real estate transactions because family members often sell property to each other at something other than the arm's length price.
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First, under IRC 2703 a buy-sell price between family members will be disregarded and the business will be estate-taxed at fair market value (FMV) unless the agreement meets the comparability test: a) it must be a bona fide business arrangement, b) it must not be a device to pass the business interest to members of the decedent's family for less than adequate consideration, and c) the terms must be comparable to similar arrangements made by unrelated parties in an arm's length transaction.
Three tax traps in a family-owned business. (Blue Chip Strategies) by Olearcek, Patrick F. / Franchising World
In this case, Insilco proved at trial that Star was insolvent at the time of the transfer, that the transfer was less than an arm's length transaction, made in bad faith, and that the consideration for the transfer was grossly inadequate.
Company can set aside property transfer under recent court decision by Real Estate Weekly
The court said there was no dispute that the Newman sale was the result of an arm's length transaction.
Island property determined under valued in light of an arm's length ... by Appraisal Journal
 
 
 
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