The Waterbury Democrat., 1943-02-26
YOUR INCOME
 TAX .
NO. n TRADES AND EXCHANGES fRART lA

(PART 1 ~.
 Among the forms Of t1ansactioalt to which consideration must be given in preparing 6 Federal income tax return are trades and exchanges or property. When a person receives. goods for services, as in the case Of Q. workman taking groceries for wages, or Q lawyer receivinSg securi- ties for professional servicSS, a question of income Nlx liablSity arises. It also arises when 6 farmsS trades farm produce for services or goods, such as groceides oy farrn equipment, or when cattSe cr farpsS or other property is traded. It arises frequently in security trans actions particularly in reorganiza- tons, where one form of security IS exchanged for another form Of security of the same or Q different corporation. All such trAnsactioHa may give rise to taxable gain. \
 Tn the case of exchange of o1e's services or the product of ones labor (as farm produced for goods or prop erty, the value of the goods or prop~ erty received in exchange becomes ordinary income reportable in item l of the return Form 1040. Where property Is exchanged for property of another kind, or for services, tho transaction may give rise to cap@ ital gain or loss (if the property ex. changed Is 6 capital asset), Teport- able in Schedule 2, item 8 (a) of the return Form 1040; and where the property exchanged is not . capital asset the transaction may give rise to ordinary gain or loss reportahlN In Schedule c and item 8 (b> of the return Form 1040. Tn such caseS. the Tr1euasre of gain or loss is tho difference between the basis of the porperty exchanged and the fair market value of the property re- ceived in exchange. ,As
 Where, however, property is exc. changed for property of Q like kind the transaction, within certain defi- nite limitations, Is considered aS giving rise neither to gain or to loss and accordingly Is nontaxable.
 The general provision regarding non taxable exchanges iS that tho property exchanged must have been held for productive use in trade or business or for investment and exchanged solely for property of4a like kind to be held either for pro- ductive use in trade on business or for investment. The simplest exe ample of such an exchange would be swap of work horses.
 It sometimes happens that . tax payer has an involuntary gain, aD when property Is sold under condena- nation, or is destroyed or stolen, with the receipt of insurance. If the proceeds of involuntary con- version are forthwith in good faith invested in property which is siIni- lar or related in service or use to the property converted" no gain shall be recognized. If, however, any part of the money received is not so reinvested, the gain in ex- cess of the amount not reinvested' would be taxable. The taxpayer must be able to prove that the money received was the money act- ually reinvested in such other prop. erty. Moreover, certain restrictions are imposed on the kind Of property in which reinvestment may be made. For instance, an investment in improved real estate of the pro- ceeds from forced sale of untE1s proved real estate; would not be considered as an investment in prop. erty "similar or related in service Or use." and any gain would hv taxable.