Section 3402-305 - Exchange of property Upon the sale or exchange of property in transactions, the gain or profit from which is included in gross income as herein defined, the entire amount of the gain or loss determined under section three hundred four of this act shall be recognized, except as hereinafter provided in this section.
(A) No gain or loss shall be recognized 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, choses in action, certificates of trust or beneficial interest, or other securities or evidences of indebtedness or interest) is exchanged solely for property of a like kind to be held either for productive use in trade or business, or for investment, or 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.(B) No gain or loss shall be recognized if stock or securities in a corporation, a party to a reorganization, are in pursuance of the plan of reorganization exchanged solely for stock or securities in such corporation or in another corporation a party to the reorganization.(C) No gain or loss shall be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock or securities in such corporation, and immediately after the exchange such person or persons are in control of the corporations, but, in the case of an exchange by two or more persons; this subsection shall apply only if the amount of the stock and securities received by each is substantially in proportion to his interest in the property prior to the exchange.(D) If property (as a result of its destruction in whole or in part, theft, or seizure, or an exercise of the power of requisition or condemnation, or the threat or imminence thereof) is compulsorily or involuntarily converted into property, similar or related in service or use, to the property so converted, or into money which is forthwith in good faith, under regulations prescribed by the department, expended in the acquisition of other property similar or related in service or use to the property so converted, or in the acquisition of control of a corporation owning such other property, or in the establishment of a replacement fund, no gain or loss shall be recognized. If any part of the money is not so expended, the gain, if any, shall be so recognized, but in an amount not in excess of the money which is not so expended.(E) If there is distributed, in pursuance of a plan of reorganization, to a shareholder in a corporation, a party to the reorganization, stock or securities in such corporation, or in another corporation, a party to the reorganization, without the surrender by such shareholder of stock or securities in such a corporation, no gain to the distributee from the receipt of such stock or securities shall be recognized.(F) If an exchange would be within the provisions of subsections A, B or C of this section, if it were not for the fact that the property received in exchange consists not only of property permitted by such subsection to be received without the recognition of gain but also of other property or money, then the gain, if any, to the recipient shall be recognized, but in an amount not in excess of the sum of such money and the fair market value of such other property.(G) If an exchange would be within the provisions of subsections A, B or C of this section, if it were not for the fact that the property received in exchange consists not only of property permitted by such subsection to be received without the recognition of gain or loss but also of other property or money, then no loss from the exchange shall be recognized.(H) As used in this section the term "reorganization" means--(1) a merger or consolidation (including the acquisition by one corporation of at least a majority of the total number of shares of all other classes of stock of another corporation or substantially all the properties of another corporation), or (2) a transfer by a corporation of all or a part of its assets to another corporation if, immediately after the transfer, the transferor or its stockholders, or both, are in control of the corporation to which the assets are transferred, or (4) a mere change in identity, form or place of organization, however effected. The term "a party to a reorganization" includes a corporation resulting from a reorganization and includes both corporations in the case of an acquisition by one corporation of at least a majority of the voting stock and at least a majority of the total number of shares of all other classes of stock of another corporation.
As used in this section, "control" means the ownership of at least eighty per centum of the voting stock and at least eighty per centum of the total number of shares of all other classes of stock of the corporation.
1935, July 12, P.L. 970, No. 314, art. III, § 305.