Daily Kennebec journal. [microfilm reel] (Augusta, Me.) 1870-1975, 1922-07-17
Collector Ham
Announces Ruling
On Income Taxes

Hon. Frank ]. Ham of this city, the
collector of internal revenue for the
District of Maine. said that numerous
inquiries have been received by the
Bureau of Internal Revenue
concerning Section 202 Of the
Revenue Act of 1921 which provides
that for the purposes of the income
tax no gain or loss shall be recogniz-
ed when property held for investment
or for productive use in trade or
business not including stock in
trade or other property held primar-
lily for sale) is exchanged for proper
ty of like kind or use.
Many taxpayers and statesmen OF
securities are Interpreting this to
mean that all sales of securities and
the immediate purchase OF like
securities are exchanges resulting
in no gain or loss" continued Mr..
Ham.
such Interpretation Of the law and
regulations is erroneous"
THE Bureau realizes that in many
cases it is difficult to determine
whether the transaction - 4 true ex-
change or really ss!e and rein
vestment of the proceeds in other
securities. To constitute an exchange
within the meaning of Section 202..
the transaction must be a reciprocal
transfer of property Cor property as
distinguished from a transfer OF
property for a money consldera ton.
In such an exchange neither princi-
pal would pay a commission to the
ether, although if u broker in his
capacity as such negotiated the ex-
change for either principal. the fact
tnat the broker was raii 4 commits
sion for his services would not of it,
self take the transaction out of the
classification as an exchange.
IF a person owning 100 shares Of
stock in "A" corporation should in
struct broker TO exchange them for
stock in 'B" corporation, it would
be essential in order to bring the
transaction witnln the meaning of the
exchange provisions of tie revenue
act that the person owing the shares
Of "B' corporation stock should re-
ceive the 100 shares of "a" cor
poration stock and that the person
owing the 100 shares of "a" corpor-
alton stock should receive the shares
of b. corporation stock.
The stock received in exchange
should be :rC1ted by eacn party as
taking the place Of the property ex-
changed. If. on the Of her nand. the
instructions 70 ne ,"oiler are in eff
feet to sell 100 shares of stock in
"A" corporation ara invest the pro-
ceeds in shares Of stock in "B" cor
poration, the transaction cannot be
treated as an exchange but is | sale
of "a" corporate On stock and pur-
chase of "B" corp )ration stock. The
element of exchange in tbs case is
lacking as tn.re is no reciprocal
transfer of securities between prin-
cipals unless b. mere coincidence.
Where ;he broker i'll the tram
saction. whatever his Instructions
| may be, sells the stock in "A" COR
poration and then buys he stock in
"B' corporation or buys TIE stock
in "B" corporation and ten sells
the stock in "a" corporation. there
is an internal Of time, however
| short, during which one or both Of
the customers would have title tc no
securities whatever. In a true ex-
| change the passing of title to the
stock in the "a corporation and
acquisition of title to the stock in
| the "B" corporation, and vice versa,
| would be simultaneous as to both
parties in the exchange.
In all cases where there is a
doubt as to whether the transaction
| is a sale or exchange. all facts con-
| nected with the transaction should
be submitted to the Bureau of In
ternal Revenue for a ruling in the
matter"