A related party transaction is a transaction wherein the same individual controls both sides of the transaction. Examples of related party transactions include the sale of an asset, a lease of property, or the lending/borrowing of money. The importance of properly handling related party transactions cannot be over-emphasized. All related party transactions should be “arms-length," properly documented and adhered to. A good question to ask is: “Is this how I would handle the transaction if I were dealing with an unrelated party?”. The dangers of not properly handling a related party transaction include adverse tax and legal consequences.
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