National Outdoor Advertising Bureau, Inc. v. Commissioner

NATIONAL OUTDOOR ADVERTISING BUREAU, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. National Outdoor Advertising Bureau, Inc. v. Commissioner Docket Nos. 65252, 70999. United States Board of Tax Appeals 32 B.T.A. 1025; 1935 BTA LEXIS 855; July 25, 1935, Promulgated *855 1. Taxpayer corporation engaged in the outdoor advertising business and transmitted to plant owners all orders for outdoor advertising received from its stockholder members, all of which were advertising agencies. The taxpayer was billed at current rates less 16 2/3 percent and in turn billed its members at the current rates less 10 percent. In one year taxpayer allowed each member an additional 1 percent on the volume of business placed with it by each member. A substantial surplus was accumulated out of its earned profits. Held, taxpayer is not a farmers', fruit growers', or like association exempt from taxation under section 103(12) of the Revenue Act of 1928. 2. Where attorney fees and other legal expenses are paid in connection with an investigation by the Department of Justice and trial of a suit in equity for a restraining order, involving alleged violations by petitioner of provisions of the Sherman Anti-Trust Act and Clayton Act in the conduct of its business, and where a consent decree is entered which does not adjudicate or find petitioner guilty of such alleged violations, held such legal expenses are deductible as ordinary and necessary expenses. *856 3. The difference between the book value of automobiles used in taxpayer's business and the amount allowed therefor upon the exchange of such used automobiles for new automobiles to be used for the same purpose is not allowable as a deduction under section 112(b)(1) of the Revenue Act of 1928. Wilton H. Wallace, Esq., and E. F. Colladay, Esq., for the petitioner. Nathan Gammon, Esq., and P. A. Sebastian, Esq., for the respondent. MCMAHON *1025 These are proceedings, duly consolidated, for the redetermination of asserted deficiencies in income tax for the years 1929 and 1930 in the amounts of $2,793.94 and $5,064.80, respectively. In both dockets it is alleged that the respondent erred in refusing to hold that petitioner is exempt from Federal income taxation under section 103 of the Revenue Act of 1928. *1026 In Docket No. 65252 it is alleged, in the alternative, that the respondent erred in disallowing the deduction of (1) $21,500.34 representing a statutory net loss sustained in 1928, (2) $43,787.36 representing litigation expenses, and (3) $308.63 representing amortization of bonds. In Docket No. 70999 it is alleged*857 that the respondent erred in disallowing the deduction of (1) $21,500.34 and $19,986.08 representing statutory net losses sustained for 1928 and 1929, respectively, (2) $1,678.67 representing amortization of bonds, and (3) $1,201.02 representing a loss sustained from trade-in of automobiles used in business. In both dockets the assignment of error relating to the disallowance of amounts representing amortization of bonds was waived. FINDINGS OF FACT. The petitioner is a New York corporation, organized under the laws of that state in December 1915 for the purpose of conducting an outdoor advertising business, with an authorized capital of $25,000 consisting of 250 shares of common stock of the par value of $100 each. In January 1919, by amendment to its certificate of incorporation, its authorized capital was increased to $200,000 consisting of 2,000 shares of $100 each. It has no preferred stock or bonds outstanding. In 1929 the petitioner had offices in New York, Cleveland, Detroit, Chicago, and San Francisco. One of the most important activities of petitioner is the maintenance of rate and data service relative to plant owners, or persons who own or lease billboards*858 or other outdoor advertising space, and types of space available for outdoor advertising in about 18,000 cities and towns in the United States and 1,000 or 2,000 cities and towns in Canada. The maintenance of this service requires personal inspection, which is rendered by petitioner's field service department, in which is a group of men who travel through the country continuously. This inspection service extends to every state in the Union, wherever there are billboard displays. This information is furnished only to petitioner's stockholders or members in a so-called rate and data manual published by the petitioner periodically or in estimates or detailed specifications. The petitioner also maintains an art studio for the production of copy and designs for posters, and for painted signs, or for the production of lay-outs and all incidental drawings required for copy to be sent to plant owners and for the furnishing of additional art work to its members. Ordinarily the art work produced or furnished by the petitioner is part of its regular or general service rendered to its members, although in a *1027 few instances where it was necessary to purchase art work some specific*859 charge was made therefor. The petitioner transacted no business with advertising agencies other than its own stockholders or members, except that in some instances it placed an order for an advertising agency which had applied for membership. Prior to November 1, 1929, the petitioner assigned all contracts or orders for advertising which it received from its members to the General Outdoor Advertising Co., hereinafter referred to as the General Co., for execution and service. The General Co. billed the members of petitioner at current prices less a commission of 10 percent. Duplicates of all bills on contracts assigned by petitioner to the General Co. were sent to petitioner by that company. At the end of each month the General Co. paid to the petitioner 2 percent of the entire monthly amount billed. The General Co. carried the accounts receivable against petitioner's members on its books. At the end of each month the petitioner totaled the amounts on the duplicates of the bills and set up an entry on its books charging accounts receivable and crediting commissions with 2 percent of the total. After November 1, 1929, and during 1930 all orders received by petitioner from*860 its members were distributed by it to the proper plant owners in the cities or towns designated, and thereafter petitioner carried on its books the gross accounts receivable against its members. The plant owners, upon execution of the orders, billed the petitioner at the current rates for advertising space less the prevailing discount of 16 2/3 percent. The petitioner, in turn, billed its members at the current rates less a discount which was determined by its board of directors at the beginning of the year. In 1929 and 1930 the discount was 10 percent. However, at the end of 1930 petitioner paid each of its members an additional 1 percent upon the volume of business placed with it by each member. In 1929 the petitioner retained 6 2/3 percent and in 1930, 5 2/3 percent on all billings to its members for its service and expenses in connection with such placing of the advertising orders for its members. The stockholders or members of the petitioner are advertising agencies which handle advertising of every kind or description for their customers. They do not confine themselves exclusively to outdoor advertising. The petitioner does. The requirements for membership in petitioner*861 are general in character. The petitioner's aim is to leave the field as wide open as possible to all advertising agencies which have financial rating and conduct their business on a business-like basis, subject to the approval of a committee. Membership is obtained by filing an application for membership containing information relative to the business of the *1028 applicant, a so-called option to purchase stock of petitioner adopted as to form by petitioner in 1925 or 1926, and a so-called subscription form. The subscription form provides in substance that for the privilege of becoming a member the applicant agrees, in addition to taking an option upon one share of stock of petitioner, to pay an initiation fee based on its volume of advertising business during the year preceding the date of subscription. The so-called option to purchase stock provides, in part, that three trustees, for the petitioner and those holding similar options, grant the applicant an option to purchase at and after 10 years from date stock of petitioner in the amount agreed upon at $100 per share, to be paid within 15 days from the date of option; that the stock to be purchased on option is subject*862 to assessment by petitioner during the life of the option to an amount not exceeding $100 per share; that upon receipt of payment therefor the petitioner will deliver to the trustees a certificate covering the agreed amount of stock; and that neither the option nor any rights or privileges thereunder or of membership shall be transferable except by consent of the petitioner, to be given by its board of directors or the officers and operating committee thereof. Prior to 1929 the option provided that during the life of the option the petitioner should be the sole agent of the applicant for the placing of outdoor advertising. At or about the time of the entry of the consent decree hereinafter referred to the existing options to purchase stock containing the exclusive agency agreement were succeeded by new option agreements which did not contain such provision. All the issued and outstanding stock of the petitioner except one share is held by the trustees. As of December 31, 1929, the petitioner had issued and outstanding 1,097 shares of stock, 241 members having subscribed therefor in varying amounts ranging from 1 share to 41 shares. As of December 31, 1930, the petitioner had*863 issued and outstanding 1,057 shares of stock, 233 members having subscribed therefor in varying amounts ranging from 1 share to 80 shares. The petitioner filed income tax returns (Form 1120) for 1928, 1929, and 1930. The following amounts were reported as income therein: [1930] Commissions $307,605.17 $244,595.82 $549,148.20 Advertising 5,518.00 146,251.83 Initiation fees 3,000.00 1,900.00 800.00 Interest on bank deposit, notes, mortgages, and corporation bonds 477.67 1,608.09 10,969.04 Discount on space 450.73 The amount of $244,595.82 for 1929 represents commissions of 2 percent which petitioner received from the General Co. The amount of $146,251.83 designated advertising represents commissions *1029 other than those received from the General Co. for the months of November and December 1929. In "Schedule K, Balance Sheets", contained in the income tax returns for 1929 and 1930, the following items are shown: Beginning of 1929 End of 1929 and beginning of 1930 End of 1930 Cash $31,463.69 $595,583.10 $304,965.88 Accounts receivable 2,104.07 597,733.44 313,841.47 Loss reserve for bad debts Investments 167,121.54 337,436.19 548,839.27 Furniture and fixtures 17,281.05 35,405.11 34,977.73 Automobiles 4,143.25 5,508.25 7,764.61 Reserve for depreciation 8,522.60 10,643.16 16,487.07 Common stock 109,600.00 109,700.00 105,700.00 Surplus 156,295.98 142,783.36 221,484.32 *864 The reserve for depreciation represented depreciation upon furniture and fixtures and automobiles. No reserve for bad debts was set up. The investments consisted in part of short term bonds and long term investments. The accounts receivable represent the billings to member agencies. The bylaws of petitioner, adopted January 20, 1916, provide that the board of directors shall by vote declare dividends only from the surplus profits arising from the business of the company, and that such dividends shall be declared whenever in their opinion the condition of the company's affairs will render it expedient for such dividends to be declared by them. The bylaws of petitioner, adopted in July 1929, contained the following provision: Section 1. At any time when the company shall have earned surplus and/or undivided profits in excess of the amount thereof existing at the close of business July 31st, 1929, the board of directors may, for any calendar year or years for which dividends to the stockholders shall have been paid or declared to the amount of not less than eight per centum per annum, order the payment from the remaining surplus and/or undivided profits to the agency members*865 as additional compensation upon and in proportion to the business respectively billed and collected for through or for the account of said agency members in such year or years, but in no case in respect of a period three years or more prior thereto, in such amounts as the board of directors in its discretion may determine; payment of such additional compensation to be concurrent with or subsequent to payment of such dividends. Dividends in the amount of 8 per cent upon the par value of $100 per share were paid in 1930, 1931, and 1932. No dividends were paid in 1929. Upon complaint of alleged violations of the Sherman Anti-Trust Act and the Clayton Act being made, an investigation of the outdoor advertising business, involving the petitioner, the General Co., and *1030 others, was instituted by the Anti-Trust Service of the Department of Justice. About February 7, 1927, Daniel D. Wever, general counsel of petitioner in New York City and an officer of petitioner, employed E. F. Colladay, an attorney in Washington, to assist him in the investigation and negotiations then pending in the Department of Justice. The negotiations between petitioner and the Department of Justice, *866 in so far as the petitioner was concerned, dealt primarily with its contract with the General Co., and the exclusive agency provision contained in its stock option agreements, which all stockholder members of petitioner were required to execute prior to November 1, 1929. After many conferences with representatives of the Department of Justice the petitioner, under date of March 26, 1927, transmitted to the Department of Justice a resolution adopted by the executive committee of the petitioner on March 24, 1927, in part as follows: RESOLVED, that Daniel DeWolf Wever, attorney for, and/or E. F. Colladay, of counsel for, the Bureau, be and they hereby are authorized to commit the Bureau to the abandonment and cancellation of existing contract between the Bureau and the General Outdoor Advertising Company and to the abandonment of the practice of clearing practically all its business through the General Outdoor Advertising Company, and the abandonment of the practice heretofore existing by which the Bureau refrained from soliciting certain specified accounts of the General Outdoor Advertising Company and by which the latter refrained from soliciting certain specified accounts in the*867 hands of the Bureau, and consent that a proper decree of the Court having jurisdiction be entered enjoining operation under said contract and the practices referred to; provided that in the same decree there be incorporated proper provisions protecting the Bureau against any and all discrimination of the General Outdoor Advertising Company or any of the other parties under the investigation of the Department of Justice into the outdoor advertising situation; provided further that a reasonable time be given before the decree should become effective, during which the Bureau could set up its own equipment and organization to place its orders direct with the plant owners and thus become entitled to the full and usual 16 2/3% commission on all business placed upon plants; and provided further that on the effective date of the decree all accounts of the Bureau theretofore assigned to the General Outdoor Advertising Company should forthwith be reassigned to the Bureau. After further conferences counsel for petitioner finally delivered to an official of the Department of Justice a letter addressed to the Attorney General of the United States making a tender to conform to all the requirements*868 of the Department of Justice. Other parties involved were not so ready to conform and about July 23, 1928, suit in equity was commenced by the United States against petitioner, the General Co., and others in the District Court of the United States in and for the Southern District of New York under provisions of the Sherman Anti-Trust Act and the Clayton Act. *1031 Prior to the trial of the case a proposed consent decree was drafted; an attorney of the Department of Justice conferred with the District Judge who later tried the case with respect to the approval thereof; the Judge declined to approve such decree upon the grounds that Federal Courts of the United States had no power to render declaratory decrees in cases of this kind; and it was necessary to try the case. The trial in this cause was begun about three weeks prior to May 7, 1929, and continued for about two and one half weeks, whereupon counsel for the Government opened negotiations for settlement with counsel for the petitioner and others. Negotiations for a settlement were had and resulted in the entry of a consent decree by the United States District Judge on May 7, 1929. This decree, among other things, *869 declared the contract dated August 24, 1925, between petitioner and the General Co., to be illegal, null and void, and perpetually enjoined petitioner and the General Co. from further carrying out such agreement or from entering into or performing any agreement the intent or effect of which is or will be to restrain or monopolize the business of soliciting contracts for outdoor advertising displays. It also declared the stock option agreements of petitioner under which it was constituted the sole agent for its members for the placing of outdoor advertising contracts null and void, and perpetually enjoined the carrying out of such provisions or from entering into or performing any agreement of exclusive agency. The decree also provided that operations under the contract of August 24, 1925, may be temporarily continued until November 1, 1929, for the purpose of making necessary changes and adjustments in the business operations of the parties. Counsel were employed in connection with this matter from on and before February 7, 1927, to July 1929. During the year 1928 the petitioner paid and charged to legal expense the sum of $23,564.03 and during 1929, the sum of $43,787.36. These*870 amounts were paid in connection with the preliminary negotiations, trial, settlement by the consent decree, and closing up of the above matter. The income tax return for 1928 reflected a net loss of $21,500.34, which item, together with the item of legal expenses in the amount of $43,627.94, petitioner deducted from its 1929 gross income. The respondent disallowed both the claimed net loss of 1928 of $21,500.34 and legal expense of 1929 of $43,627.94 as deductions for 1929. The petitioner's income tax return for 1929 reflected a net loss of $41,486.42, which amount the petitioner deducted from gross income in its 1930 income tax return as a statutory net loss. This deduction was disallowed by respondent. It was stipulated that the respondent determined that the net income of petitioner for the year 1928 was $2,063.98; that in his computation *1032 of petitioner's net income for 1928, the respondent disallowed a deduction of $23,564.03 claimed by the petitioner as legal expenses; that during 1928 the petitioner received nontaxable interest in the amount of $7,651.30; and that any amount of legal expenses which may be allowed by the Board will be the statutory net loss*871 deductible in 1929 to the extent such amount exceeds the amount of $2,063.98 plus the amount of $7,651.30. The petitioner owned and used about 17 automobiles in its inspection service department. During 1930 the petitioner acquired new automobiles and was allowed a trade-in value for old automobiles of $3,126.44 ($3,216.44). The old automobiles given in exchange originally cost $6,885.25. The total amount of depreciation written off on petitioner's books of account on these old automobiles is $2,557.79. The difference between the book basis of the old automobiles and the trade-in value allowed is $1,201.02, the amount claimed and deducted by the petitioner in its 1930 income tax return as a loss and disallowed as such by the respondent. However, the respondent allowed one half of each claimed loss, or $600.51, as additional depreciation. OPINION. MCMAHON: The first question presented for determination is whether the petitioner is exempt from Federal income tax under section 103(12) of the Revenue Act of 1928, set forth in the margin. 1 In *872 Garden Homes Co.,26 B.T.A. 441; affirmed on this point in Garden Homes Co. v. Commissioner, 64 Fed.(2d) 593, in construing a similar section of the 1926 Act, the Board stated: *1033 It seems to us that by the inclusion of the word "like" it was intended that such rule of construction should be applied, thus limiting the associations exempt from taxation under such section to farmers', fruit growers' and other associations of "like" kind, nature or character. *873 The Circuit Court stated in part: * * * In construing corresponding sections of the Revenue Acts of 1916 and 1918, the Treasury Department said (I.T. 1312; C.B. I-1, p. 263) "In framing the Statute, Congress appears to have had in mind, agricultural, fruit growing, and similar occupations. Under the doctrine of ejusdem generis the term 'like associations' should be confined to pursuits similar to farming and fruit growing." The subsequent re-enactment of that statutory provision requires that the administrative construction be considered as having been adopted by Congress. * * * In our opinion this proceeding is governed in principle by Garden Homes Co., supra. To the same effect are Stanford University Bookstore,29 B.T.A. 1280, 1283; Hills Mercantile Co.,22 B.T.A. 114, 118, South Carolina Produce Association v. Commissioner, 50 Fed.(2d) 742, affirming 19 B.T.A. 1028; Riverdale Co-operative Creamery Association v. Commissioner, 48 Fed.(2d) 711. Anything to the contrary in *874 Northwestern Drug Co.,14 B.T.A. 222, cited by petitioner, was not necessary to the Board's decision therein that petitioner was not exempt, and is not in accord with the rule of statutory construction also stated therein that a taxing statute granting an exemption from taxation must be strictly construed and all doubts resolved in favor of the Government. In our opinion the petitioner is not an association exempt from taxation under section 103(12) of the Revenue Act of 1928. Furthermore, the surplus accumulated by the petitioner can not be considered "a reasonable reserve for any necessary purpose" which is authorized under section 103(12). The auditor of petitioner testified that in his opinion the surplus of $156,295.98 at the end of 1928, $142,783.36 at the end of 1929, and $221,484.32 at the end of 1930, were reasonable reserves; that no special reserve had been set up on petitioner's books as a reserve for bad debts; and that petitioner regarded the "surplus as a reserve against the bad debt account." The present president of petitioner, who was vice president and general manager in 1928, 1929, and 1930, testified that in his opinion the surplus built*875 up by petitioner in 1929 and 1930 was too low, that the surplus was created as a reserve for the purpose of paying bills promptly in case the collections were not made promptly and to meet unusual or unexpected losses which might arise from failure of its members to pay their accounts, which petitioner felt called upon to pay to plant owners to maintain its credit. He testified that the petitioner had had losses but "Fortunately they have been very *1034 small." He further testified that ordinarily collections from its members were made prior to payment to plant owners and that the petitioner usually received money before it was paid out. There is no testimony as to what portion or percentage of the annual billings to members was uncollectible or what portion or percentage of the annual billings of plant owners to petitioner for advertising of its members petitioner was required to pay without reimbursement therefor. The surplus at the end of 1929 was approximately 24 percent of the accounts receivable and at the end of 1930 it was approximately 70 percent of the accounts receivable. There is no testimony which would reasonably justify the setting up by petitioner of a reserve*876 for bad debts upon such basis. The president also testified that the commissions earned by the petitioner currently had been sufficient to take care of emergencies "because we have been able to acquire the surplus which we have enjoyed without retaining more than 6 2/3%." In any event, the petitioner has failed to show that the surplus constituted a reasonable reserve for any necessary purpose. The petitioner claims that in 1928 and 1929 it sustained statutory net losses deductible in part in 1929 and 1930. Whether petitioner sustained statutory net losses in 1928 and 1929 is dependent upon the determination of whether the sums of $23,564.03 and $43,787.36 claimed as legal expense deductions in 1928 and 1929, respectively, are "ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business." Sec. 23, Revenue Act of 1928. It is contended by the petitioner that the suit brought against it and others was not a criminal suit and did not involve the indictment of anyone, that no proposal was made that penalties be asserted against it or anyone else, that petitioner voluntarily offered to abandon and cancel the contract between it*877 and the General Co. and to eliminate the exclusive agency feature from its stock option agreements before suit was brought, and that the expenses involved were ordinary and necessary expenses incurred in carrying on its business. A similar issue was presented in General Outdoor Advertising Co., Inc.,32 B.T.A. 1011. That company incurred or paid attorney fees and other expenses as a codefendant with the petitioner herein in the same suit involved here. We are here concerned with the same court decree. Upon similar determinative facts, we held that such attorney fees and other expenses paid or incurred by that company in defending itself in such suit were deductible from its gross income. Upon the whole record and the authority of our holding in that case, we hold that the amount of $23,564.03 incurred in 1928 and the amount of $43,787.36 incurred in 1929 by the petitioner, as heretofore set forth, constitute ordinary and necessary expenses *1035 incurred in carrying on a trade or business within the purview of section 23 of the Revenue Act of 1928. In view of our holding in this respect, the petitioner sustained a statutory loss of $13,848.75 in 1928*878 which is allowable as a deduction in computing the net income of petitioner for 1929. The net income for 1929 as adjusted by respondent is $25,399.46. In view of our holding, a net loss will result for 1929, the amount of which is allowable as a deduction in 1930. The remaining question to be determined is whether the difference between the book value of automobiles used in petitioner's business and the amount allowed therefor in an exchange for new automobiles is allowable as a loss deduction. The petitioner contends that section 112(b)(1) of the Revenue Act of 1928 2 is not applicable, as the automobiles while used in the business were not in any sense held "for productive use" and that the transaction was a simple purchase and sale. *879 It is apparent from the ercord that the transaction constituted an exchange and not a separate sale of the old automobiles and a separate purchase of the new automobiles. New automobiles were purchased and the old automobiles were turned in as a part of purchase price of the new automobiles. The automobiles were used by petitioner's inspection service department, which department was essential to the most important activity of petitioner, in fact the activity upon which its entire business rested. This was the gathering of information relative to space suitable for outdoor advertising and the personal inspection of all available advertising space throughout the United States so as to be able to perform and render the service for which it was paid. The automobiles were the means employed by petitioner for such purpose and if not directly, at least indirectly, were instrumental in the production of petitioner's income. The transaction is therefore within section 112(b)(1) of the 1928 Act and the action of the respondent in disallowing the loss of $1,202.02 claimed by the petitioner is approved. See *880 W. H. Hartman Co.,20 B.T.A. 302; Graves, Cox & Co.,27 B.T.A. 546; and George E. Hamilton,30 B.T.A. 160; I.T. 2356, C.B. VI-1, p. 168; I.T. 2419, C.B. VII-1, p. 231; and I.T. 2573, C.B. X-1, p. 215. Reviewed by the Board. Decision will be entered under Rule 50. TURNER *1036 TURNER, dissenting: I am unable to agree with the conclusion reached in the majority opinion in respect of the deduction claimed for attorney fees. The facts show that they were paid for legal services rendered in the defense of certain acts of the petitioner which were admitted in a consent decree to have been illegal, and, in my opinion, the rule laid down in Burroughs Building Material Co. v. Commissioner, 47 Fed.(2d) 178, should be applied. VAN FOSSAN and SEAWELL agree with this dissent. Footnotes 1. SEC. 103. EXEMPTIONS FROM TAX ON CORPORATIONS. The following organizations shall be exempt from taxation under this title - * * * (12) Farmers', fruit growers', or like associations organized and operated on a cooperative basis (a) for the purpose of marketing the products of members or other producers, and turning back to them the proceeds of sales, less the necessary marketing expenses, on the basis of either the quantity or the value of the products furnished by them, or (b) for the purpose of purchasing supplies and equipment for the use of members or other persons, and turning over such supplies and equipment to them at actual cost, plus necessary expenses. Exemption shall not be denied any such association because it has capital stock, if the dividend rate of such stock is fixed at not to exceed the legal rate of interest in the State of incorporation or 8 per centum per annum, whichever is greater, on the value of the consideration for which the stock was issued, and if substantially all such stock (other than nonvoting preferred stock, the owners of which are not entitled or permitted to participate, directly or indirectly, in the profits of the association, upon dissolution or otherwise, beyond the fixed dividends) is owned by producers who market their products or purchase their supplies and equipment through the association; nor shall exemption be denied any such association because there is accumulated and maintained by it a reserve required by State law or a reasonable reserve for any necessary purpose. Such an association may market the products of nonmembers in an amount the value of which does not exceed the value of the products marketed for members, and may purchase supplies and equipment for nonmembers in an amount the value of which does not exceed the value of the supplies and equipment purchased for members, provided the value of the purchases made for persons who are neither members nor producers does not exceed 15 per centum of the value of all its purchases. ↩ 2. SEC. 112. RECOGNITION OF GAIN OR LOSS. (b) Exchanges solely in kind. - (1) PROPERTY HELD FOR PRODUCTIVE USE OR INVESTMENT. - 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. ↩