Albuquerque morning journal. [volume] (Albuquerque, N.M.) 1903-1926, 1922-07-17
TAX BULLETIN
ISSUED HERE
BY HERNANDEZ

ilt iolAo"Alit0 obalCilltIll WdS is
sued yesterday by Collector of In
ternal Revenue B. C. Hernandez,
Of the district of New Mexico:
Numerous inquiries have been
received by the bureau of internal
revenue concerning section 202
Co % of the revenue act of 1921,
which provides that for. the pur-
poses of the income tax no gain
or loss shall be recognized when
property held for investment, or
for productive use in trade or bus
mess (not including stock-in- trade
or other property held primarily
for sale) is exchanged for property
of q like kind or use.
Many taxpayers and statesmen
of securities are interpreting this
to mean that all sales of securi-
| ties and the immediate purchase
of like securities are exchanges re-
sulting in no gain or loss. Such
Interpretation of the law and reg
ulationS is erroneous.
The bureau realizes that in
many cases 1t is difficult to de-
| termine whether the transaction
Is true exchange or really a sale
and reinvestment of the proceeds
in other securities. To constitute
an exchange within the meaning
of section 202 (c) % the trans
action must be a reciprocal trans
fer of property for property as
distinguished from a transfer of
property for a money considera-
ton. III such an exchange neither
principal would pay commits
sion to the other, although If
broker in his capacity, as such,
negotiated the exchange, for eth
er principal the fact that the brok-
er was paid commission for his
services would not of itself take
the transaction out of the CLASH
fication as an exchange.
If a person owning 100 shares
Of stock in "A" corporation should
instruct a broker to exchange them
for shares of stock in "B" corpor-
alton, it would be essential in or
der to bring the transaction with
in the meaning of the exchange
provisions of the revenue act that
the person owning the shares of
"B' corporation stock should re-
ceive the 100 shares of "a COR
poration stock and that the per-
son owning the 100 shares of "a"
corporation stock should receive
the shares "B' corporation stock.
The stock received in exchange
should be treated by each party
as taking the place of the prop
erty exchanged. If, on the other
hand, the instructions to the brok-
er are in effect to sell 100 shares of
stock in "A" corporation and in
vest the proceeds in shares of
stock in "B' corporation, the
transaction can not be treated as
an exchange, but is sale of "A"
corporation stock and purchase
OF 'B" corporation stock. The
element of exchange in this case
Is lacking as there is no reciprocal
transfer of securities between prin-
| cipals unless by mere coincidence.
Where the broker in the trans
| action, whatever his Instructions
may be, sells the stock in "a" cor
porat1on and then buys the stock
in "B" corporation, or buys the
stock in "B" corporation and then
sells the stock in "A' corporation,
there 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 IT,
tie to the stock in the "A" cor
poration and acquisition of title to
the stock in the "B" corporation.
and vice versa. would be stimuli
taneeous as to both parties to the
exchange.
In all cases where there Ia a
doubt as to whether the transac-
ton Is sale or exchange, all facts
connected with thea transaction
should be submitted to the bureau
or internal revenue for a. ruling
in the matter.