(a) General rule. The general rule with respect to gain or loss realized upon the sale or exchange of property as determined under section 1001 is that the entire amount of such gain or loss is recognized except in cases where specific provisions of subtitle A of the code provide otherwise.
(b) Strict construction of exceptions from general rule. The exceptions from the general rule requiring the recognition of all gains and losses, like other exceptions from a rule of taxation of general and uniform application, are strictly construed and do not extend either beyond the words or the underlying assumptions and purposes of the exception. Nonrecognition is accorded by the Code only if the exchange is one which satisfies both (1) the specific description in the Code of an excepted exchange, and (2) the underlying purpose for which such exchange is excepted from the general rule. The exchange must be germane to, and a necessary incident of, the investment or enterprise in hand. The relationship of the exchange to the venture or enterprise is always material, and the surrounding facts and circumstances must be shown. As elsewhere, the taxpayer claiming the benefit of the exception must show himself within the exception.
(c) Certain exceptions to general rule. Exceptions to the general rule are made, for example, by sections 351(a), 354, 361(a), 371(a)(1), 371(b)(1), 721, 1031, 1035 and 1036. These sections describe certain specific exchanges of property in which at the time of the exchange particular differences exist between the property parted with and the property acquired, but such differences are more formal than substantial. As to these, the Code provides that such differences shall not be deemed controlling, and that gain or loss shall not be recognized at the time of the exchange. The underlying assumption of these exceptions is that the new property is substantially a continuation of the old investment still unliquidated; and, in the case of reorganizations, that the new enterprise, the new corporate structure, and the new property are substantially continuations of the old still unliquidated.
(d) Exchange. Ordinarily, to constitute an exchange, the transaction must be a reciprocal transfer of property, as distinguished from a transfer of property for a money consideration only.
Notes of Decisions
Danenberg v. Comm'r, 73 T.C. 370 (Tax Ct. 1979).
· cites it 6× “Moreover, the petitioner's contention that the insolvency of the debtor precludes recognition of gain or loss under section 1002 is inconsistent with the language and intent of the regulations under such section.”
Guest v. Comm'r, 77 T.C. 9 (Tax Ct. 1981).
· cites it 6× “There are numerous exceptions and qualifications to the general rule contained in section 1002 .”
Magneson v. Comm'r, 81 T.C. 767 (Tax Ct. 1983).
· cites it 8× “, provides that gain or loss realized from the exchange of property differing materially either in kind or in extent is treated as income or as loss sustained.”
DeCleene v. Comm'r, 115 T.C. 457 (Tax Ct. 2000).
· cites it 2× “A taxpayer cannot engage in an exchange with himself; an exchange ordinarily requires a "reciprocal transfer of property, as distinguished from a transfer of property for a money consideration". Sec. 1.1002-1(d), Income Tax Regs.”
Leslie Co. v. Comm'r, 64 T.C. 247 (Tax Ct. 1975).
· cites it 4× “1002 and the regulations thereunder, particularly sec. 1.1002-1(b), Income Tax Regs.”
Cottage Sav. Asso. v. Comm'r, 90 T.C. 372 (Tax Ct. 1988).
· cites it 2× “1001(c) , states: (b) Strict construction of exceptions from general rule ↩ . The exceptions from the general rule requiring the recognition of all gains and losses, like other exceptions from a rule of taxation of general and uniform application, are strictly construed and do…”
Exelon Corp. v. Comm'r of Internal Revenue, 906 F.3d 513 (7th Cir. 2018).
“" 26 C.F.R. § 1.1002-1 (c). To constitute an exchange, the transaction "must be a reciprocal transfer of property, as distinguished from a transfer of property for a money consideration only.”
Romy Hammes, Inc. v. Comm'r, 68 T.C. 900 (Tax Ct. 1977).
· cites it 2× “, the underlying assumption behind such treatment "is that the new property is substantially a continuation of the old investment still unliquidated; and, in the case of reorganizations, that the new enterprise, the new *907 corporate structure, and the new property are…”
Consol. Mfg. v. Comm'r, 111 T.C. 1 (Tax Ct. 1998).
· cites it 2× “* * * If a customer were to provide a core to Petitioner at the time of sale, the existence of the exchange would be indisputable: the customer receives a remanufactured automobile part in exchange for cash (the exchange amount) and the customer's core.”
Est. of Meyer v. Comm'r, 58 T.C. 311 (Tax Ct. 1972).
· cites it 2× “Our decision herein is confined to a situation where both partnerships owned the same type of underlying assets -- in this case, rental real estate.”
Young v. Comm'r, 49 T.C.M. 1439 (Tax Ct. 1985).
· cites it 8× “21 *433 Petitioner argues that as evidenced by his clear intent and his admonition to Chappell that he would not purchase the North Carolina property unless he first sold the Virginia property, the sale and subsequent purchase were components of a single integrated plan the…”
Black v. Comm'r, 35 T.C. 90 (Tax Ct. 1960).
· cites it 2× “" If, however, the property received in exchange includes money or property other than property permitted under subsection (a) to be received without recognition of gain, then under subsection (b) the gain is to be recognized to the extent of "the sum of such money and the fair…”
— 26 C.F.R. § 1.1002-1(b) — 1 case
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