1.178-2—Related lessee and lessor.
(a)
For purposes of section 178 and § 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, 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 § 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.