If it is a
quid pro quo then the IRS will probably disallow the gift and require the taxes on the gains to be paid as though the stock were actually owned by the parents at the time of sale. Even if there is never an off-the-record conversation between the parents and the next generation, if the amounts gifted back and forth are about the same, and the stock always happens to be sold by someone in a lower bracket, and if it goes on for several years.
Would their computers catch it? I dunno. But if anyone snitched on you or if you chance into an audit, you're probably out of luck.
They might also be able to impose interest and underpayment penalties. They also, I believe, can go back as far as they want if they can prove tax evasion.
Read up on the substance over form doctrine. Good link here:
http://www.taxprophet.com/archives/faq/faqjul06.htmlGifting capital loss stock from grandparents to grandkids (or grandparents to parents), as others have pointed out, the receiver's basis would be the FMV as of the date of the transfer, and the capital loss would go unused.
I live in a community property state so I was unaware of the gifting between spouses idea. But I trust Fairmark's website. That page doesn't spell out the rules for holding period in a sale between spouses, but I would guess that since you get the spouse's basis you also get the spouse's holding period.
The other thing I would worry about, though, is that Fairmark's page doesn't say what happens in the case where stock is inherited by the surviving spouse. I did find this link (
http://www.costbasis.com/stocks/iinheritedit.html) which at the bottom of the page says that in this kind of scenario, unless you do it a year ahead of time, you revert to the original (lower) basis - in other words, that AAPL stock reverts to the $100 basis. Section 1014 of the IRS code, apparently.
Kudos for creative thinking, though.