Which of the following statements concerning related party transactions is false?

Question

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The federal tax law does not prohibit related party transactions. However, it does require that such transactions be conducted at arm's length, meaning that they should be conducted as if the parties were unrelated and dealing with each other at market rates. Additionally, the tax consequences of related party transactions may be subject to closer scrutiny by the IRS, to ensure that they reflect the true economic substance of the transaction. While related parties do have some flexibility in structuring their transactions, they will generally need to show that the terms of the deal are fair and reasonable in order to avoid negative consequences from the IRS.

Which of the Following Statements Concerning Related Party Transactions Is