The watchman and southron. [volume] (Sumter, S.C.) 1881-1930, 1922-07-15
Income Tax Ruling.

4 49, - E
| The following statement is is
sued by the collector of internal
revenue for the. District OF. South
Carolina:
T Numerous inquiries have been re-
fceiyed by the bureau. of internal
revenue concerning Section 202
| lc) (1) OF the revenue act OF 1921
which provides that for the pur-
poses Of the income tax no gain
or loss Sshall be recognized when
property held for investment, or
1for productive use In trade or busi-
| ness fnot including stock-in-trade
or other property held primarily
for sale) is exchanged for property
OF a like kind or use.
Many taxpayers and salesmen Of
securities are Interpreting this to
tmean that all sales OF securities and
the immediate purchase Of like Sc
eurities are exchanges resulting in
no gain or loss. Such interpreta-
ton of the law and regulations is
ierroneous.
The bureau realizes that in many
leases it is difficult 20 determine
whether the transaction is true
Exchange or really sale and rein-
vestment of the proceeds in other
securities. To constitute an ex-
change within meaning of section
| t2e2 ztcls Cd the transaction must
be. reciprocal transfer of property
for property as distinguished from
| a transfer of property for a money
consideration. In such an ex-
change neither principal would pay
a commission to the other. although
If. a broker in his capacity, as such,
negotiated the exchange for either
principal the fact that the broker
was paid a commission for his ser
vices would not of itself take the
transaction out o. the classification
as an exchange.
If a person ewDtng one hundred
shares of stock in 4s' corpora
! ton should instruct a broker to ex-
change them for shares of stock
Tin 81 corporation, it would be
essential in order to bring the
Transaction within the meaning of
the exchange provisions of the
revenue act that the person own
ing the shares oe st3' corporation
stock should receive the one hun
dred shares of AZ corporation
stock and that the person owning
the one hundred shares Of ca
corporation stock should receive
the shares of "B" corporation
stock. The stock received in ex-
change should be treated by each
party as taking the place of the
property exchanged. If, on, the
other hand. the Instructions to the
broker are in effect TO sell one
hundred. shares OF stock in "A'
corporation and invest the pro-
eeeds in shares Of stock in 4'B"
corporation, the transaction cannot
be treated as an exchange butts a
sale of "a" corporation stock and
a purchase of "B" corporation
stock. The element of exchange
in this case is lacking as there is
no reciprocal transfer Of securities
between principals unless by mere
coincidence.
Where the broker in the transac-
ton. whatever his instructions may
be, sells the stock in CA" corpora
ton and then buys the stock in
"B'' corporation or buys the stock
IN tsB'' corporation and then sells
the stock in ga corporation,
thexe is an interval of time, how
ever, short during which one or
both of the customers would have
title to no securities whatever. In
true exchange the passing Of title
to the stock in the "A'' corpora
ton and acquisition of title to the
stock in the "B' corporation, and
vice versa, would be simultaneous
as to both parties to the exchange.
In all cases where there is a
doubt as to whether the transac-
ton is sale or exchange, all facts
connected with the transaction
should be submitted to the bureau
of Internal revenue for ruling IN
the matter.
NJ. NJ. Weinberg. ESD, who for
some years past. has been engaged
in the study and practice of law in
the states of Massachusetts, and
Oklahoma. has located permanently
! =