8682 / Does an exchange of corporate stock for corporate stock qualify for nonrecognition treatment?

Pursuant to IRC Section 1036, common stock in a corporation may be exchanged for common stock in the same corporation tax-free. The nonrecognition rules of IRC Section 1036 apply to exchanges of common stock in the same corporation, even though the stocks are of a different class and have different voting, preemptive, or dividend rights.¹ Nonrecognition treatment also applies to an exchange of preferred stock for preferred stock in the same corporation. However, gain or loss may be recognized if cash or other property is also received. This treatment applies both to exchanges between an individual shareholder and the corporation and to exchanges between two shareholders. Such an exchange is treated in substantially the same manner as a “like-kind” exchange (see Q 8665 to Q 8669).

Finally, the exchange of stock in different corporations and exchanges of common stock for preferred stock do not qualify for nonrecognition treatment even if the shares of stock are similar in all other aspects.²

---

1.  Rev. Rul. 72-199, 1972-1 CB 228; Treas. Reg. § 1.1036-1.

2.  IRC § 1036, 1031(a); Treas. Reg. § 1.1036-1.

|