Sale or Exchange Requirement:
i.    Code: 1001(a), (b), (c), 1222, 1234(a)
ii.    Reg: 1.1001-2(a), (b); 1.1002-1
iii.    the “sale or exchange” requirement for capital gain or loss characterization is statutorily embodied in 1222; 1001(a) contains similar language, requiring a “sale or other disposition” b/f or gain or loss may be realized.  But 1222 is a higher standard.
iv.    Point of all this: not all sales or other dispositions that realize gain or loss will qualify as capital gain or loss.  Even if you’re dealing with admittedly capital assets, their dispositions won’ t necessarily qualify you for capital treatment.
1.    Helvering v. William Flaccus Oak Leather Co.  If an insurance co. pays you b/c you lost a building in a fire, you didn’t sell or exchange the building.  So if the proceeds from the payoff exceed your basis, you’ve got ordinary income, not K income.
2.    Other exs. of dispositions that don’t qualify for K treatment:
a.    Foreclosures
b.    Options
c.    Abandonment