arm's-length transaction

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.