Hypothetical question. I purchased a number of foreign currency notes for $35.00 USD each from a currency dealer. Subsequently I enter into a contract to exchange those currency notes with an unrelated party for $4,000,000.00 each. I realize that there is a tax liability on the gain of 3,999,965.00 on each note. I pay the tax on that transaction. Subsequently my brother-in-law purchases 2 of the same type of currency notes for $35.00 USD per note from a currency dealer. I enter into a contract with him to purchase those 2 notes from him for $3,000,000.00 each and he sends me the 2 notes and I send him a cashiers check for $6,000,000.00. Another fact is that those notes can still be purchased on the open market for $35.00 each. Which of these statements is true. 1. My brother-in-law incurrs a tax liability on the gain of 2,999,965.00 on each note and must pay the associated tax. 2. Because I purchased the notes for $6,000,000.00 from my brother-in-law when they could still be purchased elsewhere for $35.00 each I will encounter a gift tax liability and will have exceeded my 5.4 million lifetime exemption for gifts in excess of $14,000 per year. Does the fact that I sold like notes at the same price to an unrelated party as I bought the like notes from my brother-in-law establish that I was not gifting my brother-in-law; but was conducting a legitimate sale to him, even if I never subsequently sell the notes I bought from him for $6,000,000.00.

Hypothetical question. I purchased a number of foreign currency notes for $35.00 USD each from a currency dealer. Subsequently I enter into a contract to exchange those currency notes with an unrelated party for $4,000,000.00 each. I realize that there is a tax liability on the gain of 3,999,965.00 on each note. I pay the tax on that transaction. Subsequently my brother-in-law purchases 2 of the same type of currency notes for $35.00 USD per note from a currency dealer. I enter into a contract with him to purchase those 2 notes from him for $3,000,000.00 each and he sends me the 2 notes and I send him a cashiers check for $6,000,000.00. Another fact is that those notes can still be purchased on the open market for $35.00 each. Which of these statements is true. 1. My brother-in-law incurrs a tax liability on the gain of 2,999,965.00 on each note and must pay the associated tax. 2. ==========>>>>>>>>>A brother-in-law would not be considered a related party.ONLY If you purchase a note from a family member or related party entity,then, you will become subject to the "related party" rules, the gain on each item may be taxable. your cost basis will actually depend on whether you
end up selling it at a gain / a loss.However, you cannot deduct the loss on any item. Also, you cannot reduce gains from the sales of any of these items by losses on the sales of any of the other items.




Because I purchased the notes for $6,000,000.00 from my brother-in-law when they could still be purchased elsewhere for $35.00 each I will encounter a gift tax liability and will have exceeded my 5.4 million lifetime exemption for gifts in excess of $14,000 per year. ======>>>>>>>>>>>>>>As said above it is not a gift however, say, If we assume that it is a gift then, Correct; gift tax ‘d be imposed on the gain as the amount of gain is MORE than $5.43 M for 2015. The unified credit enables you to give away up to $5.43M during your lifetime without having to pay gift tax. Normal tax rules are suspended in the case of certain sales between related parties