The Hays free press. [volume] (Hays, Kan.) 1908-1924, 1922-08-24
TREASURY DEPARTMENT
Office of the Collector of Internal
Revenue
Wichita, Kansas, July %, 1872

Wichita, Kansas, July %, 1922
The following statement as issued
by Collector of Internal Revenue, H.
H. Motter, of the district of Kansas:
Numerous inquiries have been re-
ceived by the Bureau of Internal Rev
enue concerning Section 2O2 (c)
% of the revenue act of 1921 which
provides that for the purposes of the
income tax no gain or loss shall be
recognized when property held for
investment, or for productive use in
trade or business mot including
stock-in-trade or other property held
primarily for sale) is exchanged for
property of a like kind or use.
'HMany taxpayers and statesmen of
securities are interpreting this to
mean that all sales of securities and
the immediate purchase of like secur-
tiles and the immediate purchase of
like securities are exchanges result
ing in no gain or loss. Such interpre-
tation of the law and regulations is
erroneOuos.
"The Bureau realizes that in many
cases it is difficult to determine
whether the transaction is a true eX-
change or really a sale and reinvest-
ment of the proceeds in other secur-
tiles To constitute an exchange
within the meaning of Section 202
(c) % the transaction must be
reciprocal transfer of property for
money consideration In such an ex-
change neither principal would pay
commissioner 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 services
would not of itself take the transac-
ton out of the classification as an
exchange.
eff a person owning one hundred
shares Of stock in "A corporation
should instruct a broker to exchange
them for shares of stock in b corpoE-
alton, it would be essential in order
to bring the transaction within the
meaning of the exchange provisions
of the revenue act that the person
owning the shares Of b corporation
stock should receive the one hundred
shares of "A corporation stock and
that the person owning the one hun
dred shares of "A corporation stock
should receive the shares of b cor
pOration 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 broker
are in effect to sell one hundred
shares of stock in "A corporation and
invest the proceeds in shares of
stock in 'B' corporation, the transac-
ton cannot be treated as an exchange
but is a sale of "A corporation stock
and a purchase of 81 corporation
stock. The element of exchange in
this case is lacking as there is no re-
ciprocal transfer of securities be-
tween principles unless by mere CO.
Incidence.
'Where the broker in the transac-
ton, whatever his instructions may
be, sells the stock in "a corporation,
there is an interval of time, however
short, during which one or both of the
customers would have title to no
securities whatever. In a true ex-
change the passing of title to the
stock in the "a corporation and &C
QUESTION of title to the stock in the
81 corporation, and vice versa, would
be simultaneous as to both parties to
the exchange.
I'm all cases where there is a doubt
as to whether the transaction is a
sale or exchange, all facts connected
with the transaction should be sub
mitted to the Bureau of Internal
Revenue for a ruling in the matter -