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By virtue of Internal Revenue Code (IRC) section 1222, capital
gains and losses arise from "the sale or exchange" of capital
assets. Because this statutory requirement is clearly satisfied by
most routine dispositions of investment assets, such as sales of securities
on a securities exchange or over the counter, it is easily
overlooked in peripheral situations-for example, termination of
the taxpayer's interest in a capital asset by theft, abandonment, or
condemnation-that do not constitute a conventional "sale or exchange."
Moreover, Congress has dispensed with the technical requirement
of a "sale or exchange" in many of these peripheral situations,
so that its residual importance in a few remaining
circumstances can be a trap for the unwary.

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