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the related party purchaser then resells the property (the second
disposition) within 2 years after the first disposition and
before the original seller has received all payments due with
respect to the first disposition, the amount realized by the
related party on the second disposition is treated as a payment
received at that time by the original seller. Section 453(e)(7)
provides that subsection (e) shall not apply to a second
disposition if neither the first disposition nor the second
disposition had as one of its principal purposes the avoidance of
Federal income tax.
Section 453(f)(1)(A) and (B) defines the term “related
person” for purposes of section 453(e) as a person whose stock
would be attributed under section 318(a) (other than paragraph
(4) thereof) to the person first disposing of the property or a
person who bears a relationship described in section 267(b) to
the person first disposing of the property.
Waco’s stock was owned entirely by the Bea Ritch Trusts, and
the beneficiaries of the Bea Ritch Trusts were members of
Kanter’s family. In addition, Kanter’s family members were the
beneficiaries of Kanter’s grantor trusts. Because the Waco stock
owned by the Bea Ritch Trusts is considered owned by the
beneficiaries of the Bea Ritch Trusts under section
318(a)(2)(B)(i), and those same beneficiaries are also the
beneficiaries of Kanter’s grantor trusts, ownership of the Waco
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