For purposes of the Income Tax Act, no gain or loss shall be recognized in an exchange of property for like property of a similar value.

If property held for productive use in trade or business or for investment (not including stock in trade or other property held primarily for sale, nor stocks, bonds, notes, certificates of trust or beneficial interest or other securities or evidence of indebtedness) is exchanged solely for property of like kind to be held either for productive use in trade or business or for investment, no gain or loss is recognized.

The words “like kind” have reference to the nature or character of the property and not its grade or quality. Therefore, under this paragraph, no gain or loss is realized by one, other than a dealer, from the exchange of real estate for other real estate. One kind or class of property may not, under this paragraph, be exchanged for property of a different kind or class, as real estate for personal property.

If property, real, personal or mixed, is transferred to a corporation by one person solely in exchange for stock or securities in such corporation and, immediately after the exchange, such person is in control of the corporation, or by two or more persons solely in exchange for stock or securities in such corporation, and if, immediately after the exchange, such persons are in control of the corporation, and the amount of stock and securities received by each is substantially in proportion to his interest in the property prior to the exchange, no gain or loss will be recognized.

If common stock in a corporation is exchanged solely for common stock in the same corporation, or if preferred stock in a corporation is exchanged solely for preferred stock in the same corporation by one person solely in exchange for stock or securities in such corporation and, immediately after the exchange, such person is in control of the corporation, or by two or more persons solely in exchange for stock or securities in such corporation, and if, immediately after the exchange, such persons are in control of the corporation, and the amount of stock and securities received by each is substantially in proportion to his interest in the property prior to the exchange, no gain or loss will be recognized.

When property is exchanged for other property not of a like kind, the property received in exchange shall, for the purpose of determining gain or loss, be treated as the equivalent of cash to the amount of its fair market value. If no market exists in which all of the property so received can be disposed of at the time of exchange for a reasonably certain and definite price in cash, the exchange shall be considered as a conversion of assets from one form to another form which no gain or loss shall be deemed to arise and the property received in exchange shall be taken into the records of the taxpayers at the same cost or assessed value, (plus additions and minus depreciation and depletion allowable), as the property which he exchanged.

Dividends paid in securities or other property (other than its own stock) in which the earnings of a corporation have been invested, are income to the recipients in the amount of the market value of such property when receivable by the shareholders. Where a corporation declared a dividend payable in stock of another corporation, setting aside the stock to be so distributed and notifying the shareholders of its action, the income arising to the recipients of such stock is its market value at the time the dividends become payable. Scrip dividends are subject to tax in the year in which the warrants are issued.

In the case of property acquired as a result of an involuntary conversion, the basis of the property shall be the same as in the case of the property so converted, decreased in the amount of any money received by the taxpayer which was not expended, and increased in the amount of the gain or decreased in the amount of loss to the taxpayer recognized upon such conversion applicable to the year in which the conversion was made. Refer to 1.26-51-404(b)(1).

In any case where the taxpayer elects to replace or restore the converted property, but it is not practicable to do so immediately, he may obtain permission to establish a replacement fund in his accounts in which part or all of the compensation so received shall be held, without deduction for the payment of any mortgage. In such a case the taxpayer should make application to the Director for permission to establish such a replacement fund, and in his application should recite all the facts relating to the transaction and declare that he will proceed as expeditiously as possible to replace or restore such property. The taxpayer will be required to furnish a bond with such surety as the Director may require in an amount not in excess of double the estimated additional income taxes which would be payable if no replacement fund were established. The estimated additional taxes, for the amount of which the claimant is required to furnish security, should be computed at the rates at which the claimant would have been obliged to pay, taking into consideration the remainder of his net income and resolving against him all matters in dispute affecting the amount of the tax. Only surety companies will be approved as sureties. The application should be executed in triplicate, so that the Director, the applicant, and the surety or depository may each have a copy.

In the case of the organization of a corporation, the stock or securities of the corporation received for property, real, personal or mixed, transferred to the corporation, shall be deemed to have the same value or cost as the property so transferred and no gain or loss shall arise from the transaction.

The cost or value of the property transferred (adjusted as to depreciation and depletion) shall be entered in the records of the taxpayer as the cost of his stock in the corporation and a record of such cost must be maintained. Gain or loss in future sales of such stock shall be measured by the difference between the individual cost per share determined as above applied to the selling price of such stock.

If stock or securities in a corporation, a party to a reorganization are, in pursuance to the plan of reorganization, exchanged for stock or securities in such corporation, or in another corporation, a party to the reorganization, and other property or money, the gain, if any, to the recipient shall be recognized in an amount not in excess of the sum of the money and the fair market value of other property. No loss from such an exchange will be recognized.

If without any surrender of his stock or securities, a shareholder in a corporation, a party to a reorganization, receives in pursuance of the plan of reorganization, stock or securities in such corporation or in another corporation, a party to the reorganization, no gain to the shareholder will be recognized.

In the case of stock or securities acquired by a shareholder in connection with the transactions described in 1.26-51-412(c), the cost or assessed value of the stock in respect of which the distribution was made, shall be apportioned between such stock and the stock or securities distributed to the shareholder. The basis of each share will be the quotient of the cost or assessed value of the old shares of stock divided by the total number of the old and new shares.

Where the stock distributed in reorganization is materially different from the stock in respect of which the distribution is made, the cost or other basis of the old shares of stock shall be divided between such old stock and the new stock in proportion as nearly as may be to the respective values of each class of stock, old and new, at the time the new shares of stock are distributed, and the basis of each share of stock will be the quotient of the cost or other basis of the class with which such share belongs, divided by the number of shares in the class.

Where the stock in respect of which a distribution in reorganization is made was purchased at different times and prices, and the identity of the lots cannot be determined, any sale of the original stock will be charged to the earliest purchases of such stock (see 2.26-51-411(a)), and any sale of the stock distributed in reorganization will be presumed to have been made from the stock distributed in respect of the earliest purchased stock.

Where the stock in respect of which a distribution in reorganization is made was purchased at different times and prices, and the stock distributed in reorganization cannot be identified as having been distributed in respect of any particular lot of such stock then any sale of the stock distributed in reorganization will be presumed to have been made from the stock distributed in respect of the earliest purchased stock.