![]() On a personal level, a non-arm’s length transaction can have significant tax implications for both the buyer and seller. Conceptual analysis: Ownership, substance and commercial rationality 157 5.3.1.1. ![]() Arm’s length principle as not an anti-avoidance measure 148 5.3. Arm’s length principle as not a methodology 146 5.2.3. Arms-length is also a significant term for appraisers. Appraisers work hard to verify sales with buyers, sellers, brokers, assessors, and other interested parties. They verify sales to ensure that the transactions are truly comparable to the subject of the assignment and they also verify the sales to increase the credibility of their valuation opinions. When an appraiser calls a buyer, seller, or broker to learn more about a sale, a standard question is, “in your opinion, was this sale arms-length?” The reasons for their opinions are equally important because a buyer and a broker may have different concepts of “arms-length.” An agent may say that it was not arms-length because it was sold to the seller’s neighbor, but the seller may say it was arms-length because he wasn’t going to give his neighbor a deal. After learning what the interested parties thought about the sale, the appraiser will examine traditional factors, such as whether the property was listed on the market, whether it was a related-party transaction, and whether there was an option that pre-determined the price. There is no one factor that dictates whether a transaction was arms-length, but a critical factor is whether the buyer or seller believes that they paid or received market rate. Appraisers know that buyers and sellers will frequently give their candid thoughts on whether they think they received a good deal, a bad deal, or a market deal. Effects of non-arm’s length transactions. Arm’s length principle as an aspect of tax treaties 134 5.2.2.
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