arm's-length transaction

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.

arm's-length transaction

A transaction in which the parties have equal bargaining strength in order to protect their individual interests and are not related or involved in some other type of relationship that would tend to call into question the fervor with which they attempt to protect their interests. If the IRS determines that a sale of real estate was not an arm's-length transaction for fair market value,it may deem part of the value of the property as a gift,which could result in gift taxes.

References in periodicals archive ?
The transaction is an arm's-length transaction and no finder's fee is payable in connection with the agreement.
Oregon law defines RMV for property tax assessment purposes as "the amount in cash that could reasonably be expected to be paid by an informed buyer to an informed seller, each acting without compulsion in an arm's-length transaction occurring as of the assessment date for the tax year" Of the three recognized methods for valuing property, the court viewed the sales comparison method as the most appropriate method for valuing residential property.
In addition, taxpayers must take care to avoid any facts that may imply the existence of anything other than an arm's-length transaction.
Counterfactual experiments show why cross-border transmission may be much higher for a multinational transaction than for an arm's-length transaction.
The acknowledgment must include the donor's name and taxpayer identification number (typically, his or her Social Security number), the vehicle identification number, a statement certifying that the car was sold in an arm's-length transaction, the amount of gross proceeds from the sale and a statement that the donor may not deduct more than the gross proceeds from the sale.
If, in a commercial arm's-length transaction, the recipient of a payment is taxed on an income basis, TEI believes it would be appropriate to permit the purchaser to treat the payment as an expense on income account.
In Bongard, the IRS argued that this was not an arm's-length transaction since one could not occur between related parties.
If no market rate is available, the valuation exercise will have to estimate what the price of those equity instruments would have been on the grant date in an arm's-length transaction between knowledgeable, willing parties.
With these modifications, the model measures the fair value of ESOs based on the hypothetical price a fully-diversified outside investor would pay in an arm's-length transaction to purchase the right to receive the ESO's cash flow (as distinct from the ESO itself, which is not transferable).
and as a result this is not an arm's-length transaction.
The appellate court noted that Bondo had presented evidence of an arm's-length transaction including a limited warranty deed, a seller closing statement, and the first four pages from a purchase agreement.
In the context of an arm's-length transaction, the value of each side of the transaction is presumed to be equal.