[Code of Federal Regulations]
[Title 26, Volume 1]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.178-2]

[Page 214-215]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.178-2  Related lessee and lessor.

    (a) For purposes of section 178 and Sec. 1.178-1, a lessor and 
lessee shall be considered to be related persons if:
    (1) The lessor and lessee are members of an affiliated group, as 
defined in section 1504 and the regulations thereunder; or
    (2) The relationship between the lessor and lessee is one described 
in section 267(b), except that the phrase ``80 percent or more'' shall 
be substituted for the phrase ``more than 50 percent'' wherever such 
phrase appears in section 267(b).
    (b) In the application of section 267(b) for purposes of section 
178, the rules provided in section 267(c) shall apply,

[[Page 215]]

except that the family of an individual shall include only his spouse, 
ancestors, and lineal descendants. Thus, if the lessee is the brother or 
sister of the lessor, the lessee and lessor will not be considered to be 
related persons for purposes of section 178 and Sec. 1.178-1. If the 
lessor leases property to a corporation of which he owns 80 percent or 
more in value of the outstanding stock, the lessor and lessee shall be 
considered to be related persons. On the other hand, if the lessor 
leases property to a corporation of which he owns less than 80 percent 
in value of the outstanding stock and his brother owns the remaining 
stock, the lessor and lessee will not be considered to be related 
persons.
    (c) If a relationship described in section 267(b) exists 
independently of family status, the brother-sister exception does not 
apply. For example, if the lessor leases property to the fiduciary of a 
trust of which he is the grantor, the lessor and lessee will be 
considered to be related persons for purposes of section 178. This 
result obtains whether or not the fiduciary is the brother or sister of 
the lessor since the disqualifying relationship exists because of the 
grantor-fiduciary status and not because of family status.

[T.D. 6520, 25 FR 13691, Dec. 24, 1960]