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
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