*963 Holders of common participation shares of a trust transferred their shares to a corporation in exchange for shares of its preferred stock, marketable securities of other companies, and cash. Held that there was no reorganization within the meaning of section 202(c)(2) of the Revenue Act of 1921, that the transaction of each shareholder constituted an exchange of property held for investment for property of a like kind or use, except as to the cash involved, within the meaning of section 202(c)(1) of such act, as it was in effect during the calendar year 1922, and that, since the cash received did not exceed the basis of the shares exchanged, no taxable gain was derived.
*321 These are proceedings, duly consolidated for hearing and disposition, for the redetermination of deficiencies in income taxes for the year 1922 in the respective amounts of $42,706.21, $30,872.09, and $29,001.72.
In each proceeding it is alleged that the respondent erred in including in taxable income profits alleged by respondent to have resulted from the exchange of common*964 stock of the Associated Simmons Hardware Cos. for preferred stock of the Winchester-Simmons Co., stocks of other companies, and cash. In Docket No. 47210 it is also alleged that the respondent erred in twice including the sum of $1,997.63 in cash received by Wallace D. Simmons in connection with the transaction.
The parties entered into a stipulation of facts, which we adopt as part of our findings of fact and incorporate herein by reference, setting forth, however, only those portions which we deem necessary to an understanding of the proceedings. The other evidence in the proceedings consists of admissions in the pleadings and evidence offered at the hearing.
FINDINGS OF FACT.
Wallace D. Simmons, Edward H. Simmons, and George W. Simmons were the owners of approximately 60 percent of the common shares and approximately 22 percent of the preferred shares of the nationally known hardware business called "Associated Simmons Hardware Companies", which was formed under a trust agreement dated April 26, 1920. Such trust was created in Massachusetts and in the trust agreement it was provided that the construction and effect thereof should be subject to and according to the laws*965 of the State of Massachusetts. Under the declaration of trust a provision was made for the issuance of both preferred and common participation shares, the preferred having a par value of $100 per share and the common having a par value of $10 per share. It had outstanding, in 1922, 51,000 preferred shares and 930,000 common shares. In that year it also had outstanding secured debentures in the amount of $7,000,000 or $7,500,000.
Prior to July 6, 1922, Edward H. Simmons owned 1,958 preferred shares and 175,500 common shares of the Associated Simmons Hardware Cos. On July 6, 1922, he delivered to his wife, Mabel F. Simmons, and his daughter, Dorothy L. Simmons, each, a certificate for 50,000 common shares of the Associated Simmons Hardware Cos. *322 or interim receipts representing such shares. Thereafter, Edward H. Simmons had no further interest in those securities and upon the transaction with the Winchester-Simmons Co., hereinafter referred to, his wife and daughter received the consideration in exchange for the shares which he had transferred to them. Prior to such transaction, George W. Simmons had transferred 40,000 of his 155,500 Associated Simmons Hardware Cos. *966 common shares to his wife and 40,000 shares to his wife as trustee for his children.
The principal office of the Associated Simmons Hardware Cos. was in the city of St. Louis, Missouri. It was a holding company and did not engage in any business of manufacturing or distributing. Its assets consisted of shares of stock in various wholesale hardware distributing houses, manufacturing corporations, and allied lines throughout the United States. It owned and controlled the capital stock of these operating companies. Under the declaration of trust, the trustees controlled and operated the business of the Associated Simmons Hardware Cos.
On or about April 25, 1922, negotiations were opened between George W. Simmons (representing the holders of the majority of the Associated Simmons Hardware Cos. common shares) and certain stockholders of the Winchester Co., a Delaware corporation, which was engaged primarily, through subsidiaries, in the manufacture of hardware, guns, ammunition, and kindred products, and which controlled the Winchester Repeating Arms Co., which had a factory at New Haven, Connecticut.
The negotiations were had with a view toward organizing a new corporation*967 to acquire the common shares of the Associated Simmons Hardware Cos. and the common stock of the Winchester Co. with a view to coordinating the business interests of those two holding companies and their respective various operating subsidiaries. In these negotiations George W. Simmons represented the Simmons family interests, on the one hand, and C. S. Sargent, Jr., represented the Winchester interests on the other. For the purpose of facilitating the negotiations, Wallace D. Simmons and Edward H. Simmons transferred their Associated Simmons Hardware Cos. common shares to their representative, George W. Simmons, under date of April 25, 1922, to be held by him merely as their agent for such purpose.
During the period of the negotiations, from April 25, 1922, to September 27, 1922, none of the shareholders, officers, or trustees of either of the negotiating companies was associated in any way with the other company or with any of their respective subsidiaries.
None of the petitioners was at any time a dealer in the shares of the Associated Simmons Hardware Cos. The Associated Simmons *323 Hardware Cos. common shares held by Wallace D. Simmons, Edward H. Simmons, and*968 George W. Simmons were held for investment purposes. They did not sell any of such shares.
On June 26, 1922, the Associated Simmons Hardware Cos. sent a letter to each of the holders of its common shares. In such letter it was stated that a new corporation was to be immediately organized and known as the Winchester-Simmons Co., the stock of which was to be distributed to the shareholders of the Winchester Co. and the Associated Simmons Hardware Cos.; that the Mercantile Trust Co. of St. Louis was to act for the shareholders of the Associated Simmons Hardware Cos. in the transaction and, upon receipt of the shares of the Associated Simmons Hardware Cos., should issue interim receipts; and that the Mercantile Trust Co. should receive as compensation for its services in negotiating the transaction and for handling the details of it a commission of 5 percent of the net tangible value to be established, this 5 percent to be deducted by the Mercantile Trust Co. in making its return to each shareholder.
Under date of August 28, 1922, the Winchester-Simmons Co. was incorporated under the laws of the State of Delaware, with an authorized capital stock of 350,000 shares, of which 100,000*969 shares were 7 percent preferred stock of the par value of $100 per share, and 250,000 shares were common stock without par value.
On or about June 24, 1922, the Mercantile Trust Co., of St. Louis, was appointed as the depositary to receive any Associated Simmons Hardware Cos. common shares which might be surrendered by their holders for exchange pursuant to the aforesaid negotiations, and to distribute any shares of the new corporation and other property which might be delivered pursuant to the negotiations, and under date of June 24, 1922, it received from George W. Simmons all of the Associated Simmons Hardware Cos. common shares which were held by him personally, as agent, or in a fiduciary capacity.
On September 15, 1922, there was sent to the holders of Associated Simmons Hardware Cos. common shares a letter signed by Wallace D. Simmons, Edward H. Simmons, and George W. Simmons, which stated, in part, as follows:
* * *
The basis of exchange for the common shares of Associated Simmons Hardware Companies has been determined to be $6.25 per share, and exchange will be made as follows: For each share of Common stock of Associated Simmons Hardware Companies, the registered*970 holder of which has filed his assent thereto with the Mercantile Trust Company, St. Louis, as depositary, there will be given in exchange -
(a) *324 $3.75 in cash, plus interest therein at the rate of 6% per annum from September 15, 1922, to the date of payment to the Mercantile Trust Company by The Winchester-Simmons Company, or at the option of the holder, marketable securities acceptable to the holder, but no interest will be paid after October 1, 1922; and
(b) $2.50 in The Winchester-Simmons Company 7% Preferred Stock at par.
(c) In reaching the above figures certain assets of doubtful value have not been determined. If any value is later determined for these assets, in accordance with the agreements with reference thereto, there will be a further pro rata distribution of Preferred Stock.
* * *
* * * No certificates for fractional shares of Preferred Stock of The Winchester-Simmons Company will be issued, but the Mercantile Trust Company will, up to October 15, 1922, out of funds reserved for commissions and expenses, purchase at par fractional interests in said preferred shares to which depositors are entitled, or sell at par to depositing shareholders additional*971 fractional interests in such preferred shares sufficient to enable each depositing shareholder to receive a certificate for an integral number of shares. * * *
* * *
The above arrangement has been approved and accepted by the undersigned and other officers of the Simmons Hardware Company in lieu of the arrangement set forth in the letter of June 28, 1922, and they have executed the assent thereto in the same form as herewith enclosed.
* * *
On September 26, 1922, the Winchester-Simmons Co. made separate written offers to Wallace D. Simmons, Edward H. Simmons, George W. Simmons, Mabel F. Simmons, Dorothy L. Simmons, and Virginia W. Simmons, to deliver to them certain listed "marketable securities" consisting of shares of common and preferred stocks of other companies, and cash, together with 7 percent preferred stock of the Winchester-Simmons Co. in exchange for Associated Simmons Hardware Cos. common shares owned by them. These offers were accepted for the parties by Roy H. Goddard, attorney in fact, on September 27, 1922, and the considerations recited were received and receipted for by them. On the same date the Mercantile Trust Co. received from them cash and shares*972 of preferred stock of the Winchester-Simmons Co., as commissions for its services and to cover actual expenses other than those of the Mercantile Trust Co.
The following tabulation shows the amount of cash and the number of shares of preferred stock of the Winchester-Simmons Co. received by each of the shareholders of the Associated Simmons Hardware Cos., the number of Associated Simmons Hardward Cos. common shares which each transferred to the Winchester-Simmons Co., and the amount of cash and the number of shares of preferred stock of *325 the Winchester-Simmons Co. which they each paid to the Mercantile Trust Co. to cover commissions and other expenses:
| Received from Winchester-Simmons Co. 1 | Commissions and expenses paid to Mercantile Trust Co. | ||||
| Cash | Number of shares of preferred stock of Winchester-Simmons Co. | Number of Associated Simmons Hardware Cos. common shares transferred to Winchester-Simmons Co. | Cash | Number of shares of preferred stock of Winchester-Simmons Co. | |
| Wallace D. Simmons | $42,797.63 | 5,440 | 217,600 | $40,800.00 | 272 |
| Edward H. Simmons | 16,909.67 | 1,887 1/2 | 75,500 | 14,156.25 | 94 3/8 |
| George W. Simmons | 16,511.25 | 1,887 1/2 | 75,500 | 14,156.25 | 94 3/8 |
| Mabel F. Simmons | 10,221.25 | 1,250 | 50,000 | 9,375.00 | 62 1/2 |
| Dorothy L. Simmons | 10,221.25 | 1,250 | 50,000 | 9,375.00 | 62 1/2 |
| Virginia W. Simmons | 157,648.75 | 2,000 | 80,000 | 15,000.00 | 100 |
By October 14, 1922, the Winchester-Simmons Co. had received from the Mercantile Trust Co., pursuant to the above described transactions with the petitioners on September 27, 1922, and pursuant to transactions with other holders of outstanding common stock of the Associated Simmons Hardware Cos. approximately 98 percent of the total outstanding shares of common stock of the Associated Simmons Hardware Cos.; and or about the same date, the Winchester-Simmons Co. also acquired title to approximately 90 percent of the total outstanding shares of common stock of the Winchester Co. At the time of this transaction none of the preferred shares of the Associated Simmons Hardware Cos. were acquired by the Winchester-Simmons Co.
After these transactions took place the Associated Simmons Hardware Cos. still continued in operation and continued to hold the stocks of the same operating and manufacturing companies*974 which it had theretofore held. Thereafter, the Winchester Co. continued with its operations for an undisclosed period of time.
After acquiring the 90 percent of the common stock of the Winchester Co. and approximately 98 percent of the common shares of the Associated Simmons Hardware Cos. in 1922, the Winchester-Simmons Co. did not carry on any business other than merely holding such shares of the Associated Simmons Hardware Cos. and the Winchester Co. - in short, the Winchester-Simmons Co. was a holding company.
The fair market value basis for determining gain or loss for income tax purposes on the Associated Simmons Hardware Cos. *326 common shares at the time the above mentioned transactions were consummated on September 27, 1922, was $2.0747 per share.
In the deficiency notices the respondent held that the transactions in question resulted in taxable gain. In the deficiency notice mailed to Wallace D. Simmons, the respondent stated in part as follows:
From the information submitted, it would appear that you exchanged your stock in the Associated Simmons Hardware Company for 7% preferred stock in the Winchester-Simmons Company at par ($2.50) and $3.75 in cash, *975 or at your option an equivalent amount of any marketable securities acceptable to you.
* * *
Under such circumstances it is evident that the fair market value of the securities received in lieu of cash was equivalent to the amount paid for such securities by the depository, that is, $3.75 per each share of the Associated Simmons Hardware Companies common stock.
In the opinion of this office, the exchange of stock is governed by Section 202(e) of the Revenue Act of 1921, which provides in part as follows:
Where property is exchanged for other property which has no readily realizable market value, together with money or other property which has a readily realizable market value, then the money or the fair market value of the property having such readily realizable market value received in exchange shall be applied against and reduce the basis, provided in this section, of the property exchanged, and if in excess of such basis, shall be taxable to the extent of the excess; * * *.
The stock of the outside corporations received by you in exchange must be treated as "other property" because it was not "stock or securities in a corporation, a party to or resulting from such reorganization" *976 within the language of Section 202(c)(2). Accordingly, the application of the $3.75 against the basis of $2.0747, leaves a taxable excess of $1.6753 resulting from the exchange of each share of common stock in the Associated Simmons Hardware Companies. Upon the sale or other disposition of the preferred stock received in exchange, the full amount should be reported for income tax purposes.
Since you owned 217,600 shares of stock in the Associated Simmons Hardware Companies, the profit taxable in your 1922 return has been computed as follows:
| 217,600 shares at $1.6753 | $364,545.28 |
| Less: Commission | 40,800.00 |
| Balance | $323,745.28 |
| Less: Additional Commission | 45.00 |
| Balance | $323,700.28 |
| Plus: Additional cash received | 2,297.63 |
| Profit realized | $325,997.91 |
The deficiency notices sent to Edward H. Simmons and George W. Simmons are substantially the same as that above quoted. The respondent determined that Edward H. Simmons owned 175,500 shares in the Associated Simmons Hardware Cos. and that he *327 derived a profit of $265,170.82. He determined that George W. Simmons owned 155,500 shares in the Associated Simmons Hardware Cos. and that he realized a*977 profit upon the transaction of $233,630.40.
OPINION.
MCMAHON: At the hearing counsel for the respondent conceded error in holding that George W. Simmons transferred 155,500 Associated Simmons Hardware Cos. common shares to the Winchester-Simmons Co., since prior to that time he had transferred 40,000 shares to his wife and 40,000 shares to his wife as trustee for his children. George W. Simmons transferred 75,500 shares to the Winchester-Simmons Co. The respondent held that Edward H. Simmons transferred 175,500 Associated Simmons Hardware Cos. common shares to the Winchester-Simmons Co. However, the evidence shows that this was error on the part of the respondent. Prior to that time Edward H. Simmons had delivered to his wife, Mabel F. Simmons, and his daughter, Dorothy L. Simmons, each, a certificate for 50,000 common shares or interim receipts representing such shares, and he transferred to the Winchester-Simmons Co. 75,500 common shares in the transaction in question.
The respondent held that the transfers of Associated Simmons Hardware Cos. common shares by Wallace D. Simmons, Edward H. Simmons, and George W. Simmons to the Winchester-Simmons Co. in exchange for preferred*978 stock of such company, "marketable securities" of other companies, and cash are governed by section 202(c)(2) and (e) of the Revenue Act of 1921. He held that the three individuals had the right to exchange each share for preferred stock in the Winchester-Simmons Co. and $3.75 in cash, or, at their option, an equivalent amount of any marketable securities acceptable to them. He held that under these circumstances the fair market value of the securities received for each Associated Simmons Hardware Cos. common share in lieu of cash was equivalent to $3.75, the amount which, respondent held, was paid for such securities by the depositary, and held that gain was derived upon the transfer of each Associated Simmons Hardware Cos. common share in the amount of the excess of $3.75 over the basis. Respondent held that the basis was $2.0747 for each Associated Simmons Hardware Cos. common share, and it has been stipulated that this is the proper basis. Respondent, in his computation of gain derived, included no value for the preferred stock of the Winchester-Simmons Co. received by each of the individuals, but stated in the notice of deficiency that, upon the later sale or other disposition*979 of such preferred stock, the full amount should be reported for income tax purposes. The petitioners *328 contend that the exchanges come within the provisions of section 202(c)(1) of the Revenue Act of 1921. They claim that both the preferred stock of the Winchester-Simmons Co. and the common and preferred stock of other companies, which they received on the exchange, are of a like kind or use to the shares exchanged within the meaning of that section, and that the exchange to this extent is nontaxable. They admit that the cash received, less cash commissions paid therefrom, would be taxable if in excess of the basis, under the provisions of the second clause of section 202(e), but point out that cash was not received in excess of the basis. There is set forth in the margin section 202(c)(1), (2) and (e) of the Revenue Act of 1921. 1
*980 It should be pointed out that certain amendments made to section 202(c)(1) and (e) of the Revenue Act of 1921 by an act of Congress approved March 4, 1923, are not applicable in the instant proceeding, since the act specifically provides that it should take effect January 1, 1923.
The respondent held that the depositary paid cash for these securities of other companies and, in effect, treated the transaction as one in which the individuals received cash and then purchased stocks of the other companies, rather than an exchange, in part, of the common participation shares for stock of the other companies. There is some evidence to indicate that it was contemplated that the depositary should buy stock of other companies suitable to the individuals. The letter of September 15, 1922, setting forth the proposal to the shareholders *329 of the Associated Simmons Hardware Cos. stated that in addition to the preferred stock of the Winchester-Simmons Co. there should be received for each Associated Simmons Hardware Cos. common share $3.75 in cash, or, at the option of the holder, marketable securities acceptable to the holder. However, it is apparent that this plan was not carried*981 out. On the other hand, on September 26, 1922, the Winchester-Simmons Co. made separate written offer to each of the individuals, setting forth a list of the "marketable securities" of other companies which it offered to each such shareholder of the Associated Simmons Hardware Cos., together with cash and preferred stock of the Winchester-Simmons Co. The offer last made was accepted in each instance. In our opinion, it can not be said, in view of the these circumstances, that the shareholders of the Associated Simmons Hardware Cos. received cash and then, with a portion of such cash, purchased stock of other companies. We, therefore, hold that there was an exchange of common shares of the Associated Simmons Hardware Cos. for preferred stock of the Winchester-Simmons Co. and preferred and common stock of other companies, together with cash.
The evidence shows to our satisfaction that the individuals held all their Associated Simmons Hardware Cos. common shares for investment, and that such individuals were not dealers in securities; and the question to be determined is whether the preferred stock of the Winchester-Simmons Co. and common and preferred stocks of the other companies*982 received by the individuals from the Winchester-Simmons Co. were property of a like kind or use as compared with the common shares of the Associated Simmons Hardware Cos. which they exchanged therefor, within the meaning of section 202(c)(1), or whether it was "other property" within the meaning of the second clause of section 202(e). In ; affd., , we stated in part:
* * * We see no justification for saying as a matter of law that for the purpose of this statute stocks and bonds are per se not property of like kind or use. The words can not fairly be regarded as importing distinctions which have no relation to the purpose of the statute. Stocks and bonds are both commonly regarded as investment property, and if in any case they are not so in fact it must be because the evidence so indicates. * * *
If the test lies in an identity of legal rights inherent in the property, the provision could be practically nullified. * * *
In *983 , reversing , the court stated:
* * * It seems reasonably clear that Congress intended that paper profits or paper losses resulting from the exchange of securities held for investment purposes, whether stocks or bonds, commonly known as "wash sales," should not be reflected in taxable income. It was evidently not intended that such *330 profits or losses, if resulting from an exchange of common stock for bonds, preferred stock, bonds with conversion privileges, profit-sharing certificates, debentures, beneficial certificates in common-law trusts, or other evidences of the obligations of or rights of participation in the profits or property of corporate or other entities which are known to the modern financial world and generally sold to the public as "investment securities", should stand on any different basis than exchanges of stock for stock or bonds for bonds.
* * *
To the same effect is , petition for review dismissed on stipulation of the parties July 23, 1931, by the United States Circuit Court of*984 Appeals for the Third Circuit in Commissioner v. Girard Trust Co. et al., Executors. See also ; ; and ; petition for review dismissed by the United States Circuit Court of Appeals for the Fifth Circuit in .
It will thus be seen that the words "like kind or use" employed in section 202(c)(1) with regard to property held for investment have received liberal interpretation. Upon the authorities cited we hold that both the preferred stock of the Winchester-Simmons Co. and the preferred and common stock of the other companies were property of a like kind or use as compared with the common shares of the Associated Simmons Hardware Cos. which were exchanged within the meaning of this section and that such stock was not "other property" within the meaning of the second clause of section 202(e).
In so holding we have not overlooked the fact that the Associated Simmons Hardware Cos. is not and was not a true corporation, but a trust. At the hearing and on brief counsel for*985 petitioners stated that the Associated Simmons Hardware Cos. is and was a so-called Massachusetts trust, and this statement was not challenged by the counsel for respondent. The petitioners state on brief that it is and was an association taxable as a corporation; and no contention has been raised by the respondent that its shares are not property of a like kind or use as compared with stock of a true corporation, upon the grounds that its shares are in reality participation shares in a trust. On the contrary, the respondent, in his determination, has treated it as a true corporation, inasmuch as he held that these transactions amounted to a reorganization of a corporation under section 202(c)(2). In any event, we consider the words "like kind or use", as interpreted by the above cited authorities, as broad enough to cover the transactions in question in these proceedings.
In the deficiency notices the respondent stated that the stock of the outside corporations received by the individuals in exchange must be treated as "other property" because it was not "stock *331 or securities in a corporation a party to or resulting from such reorganization" within the language of*986 section 202(c)(2). The respondent thus determined that these transactions consistuted a reorganization within the meaning of such section, but he has not favored us with any brief in support of his determination.
The petitioners contend that there was no reorganization, but that even if there were, the securities of the other companies which were received would not be taxable. We find it unnecessary to decide whether such securities of other companies would be taxable if there had been a reorganization, since, in our opinion, it is clear that there was no reorganization within the meaning of the statute.
Here the transactions between the Winchester-Simmons Co., on the one hand, and the stockholders of the Winchester Co. and the shareholders of the Associated Simmons Hardware Cos., on the other hand, did not constitute a true merger or consolidation, nor did they result in anything of the nature of a merger or consolidation. There was apparently no intention of accomplishing a merger or consolidation. We find it unnecessary to predicate these conclusions upon the facts that neither of the old companies was to go out of existence and that neither did. The Winchester-Simmons*987 Co. did not acquire any of the preferred shares of the Associated Simmons Hardware Cos., nor did it acquire any of its assets. It appears that the Winchester-Simmons Co. was nothing more than a holding company, holding a large percentage of the common stock of the Winchester Co., and the common shares of the Associated Simmons Hardware Cos. Both the Winchester Co. and the Associated Simmons Hardware Cos. retained the assets which they had always held. There was no recapitalization, or mere change in identity, form, or place of organization of the Associated Simmons Hardware Cos. Upon principles enunciated in the following cases, we hold that there was here no reorganization within the meaning of section 202(c)(2) of the Revenue Act of 1921: , affirmed on this point Feb. 18, 1935, in ; . See , and *988 ; and see discussion in .
Under section 202(c)(1) and the last part of section 202(e) none of the stock received in exchange is taxable, and, since the cash received (not exceeding 25 cents per share) was not in excess of the basis of the common shares of the Associated Simmons Hardware Cos., there was no taxable gain derived upon the transactions by any of the individuals with whom we are concerned. .
*332 It is alleged in Docket No. 47210 that the respondent erred in twice including the cash received by Wallace D. Simmons in connection with the transfer of his Associated Simmons Hardware Cos. common shares to the Winchester-Simmons Co. An examination of the notice of deficiency discloses that the respondent did commit such an error. In view of our holding, however, that the cash received did not exceed the basis of the shares exchanged and that Wallace D. Simmons did not derive any taxable gain upon the transactions, this error of the respondent becomes of no consequence here.
Decision will be entered under*989 Rule 50.
Footnotes
1. In addition there were received by each certain "marketable securities" of other companies listed in exhibits included in the stipulation of facts, and other exhibits introduced in evidence at the hearing. They consisted of common and preferred stock of the companies. ↩
1. (c) For the purposes of this title, on an exchange of property, real, personal or mixed, for any other such property, no gain or loss shall be recognized unless the property received in exchange has a readily realizable market value; but even if the property received in exchange has a readily realizable market value, no gain or loss shall be recognized -
(1) When any such property held for investment, or for productive use in trade or business (not including stock-in-trade or other property held primarily for sale), is exchanged for property of a like kind or use;
(2) When in the reorganization of one or more corporations a person receives in place of any stock or securities owned by him, stock or securities in a corporation a party to or resulting from such reorganization. The word "reorganization," as used in this paragraph, includes a merger or consolidation (including the 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, or of substantially all the properties of another corporation), recapitalization, or mere change in identity, form, or place of organization of a corporation, (however effected); or
* * *
(e) Where property is exchanged for other property which has no readily realizable market value, together with money or other property which has a readily realizable market value, then the money or the fair market value of the property having such readily realizable market value received in exchange shall be applied against and reduce the basis, provided in this section, of the property exchanged, and if in excess of such basis, shall be taxable to the extent of the excess; but when property is exchanged for property specified in paragraphs (1), (2), and (3) of subdivision (c) as received in exchange, together with money or other property of a readily realizable market value other than that specified in such paragraphs, the money or fair market value of such other property received in exchange shall be applied against and reduce the basis, provided in this section, of the property exchanged, and if in excess of such basis, shall be taxable to the extent of the excess. ↩