Final answer:
Taxpayers should avoid transactions that activate the related-party loss disallowance rules.
Step-by-step explanation:
Taxpayers should avoid transactions that activate the related-party loss disallowance rules. True.
The related-party loss disallowance rules are designed to prevent taxpayers from using related-party transactions to artificially generate losses that can be used to offset taxable income. When transactions fall under these rules, the losses may be disallowed for tax purposes, resulting in a higher tax liability for the taxpayer.
For example, if a taxpayer sells property to a related party at a loss, the related-party loss disallowance rules may prevent the taxpayer from deducting that loss on their tax return. This discourages taxpayers from engaging in transactions solely for the purpose of generating tax losses.