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defines long-term capital gain as “gain from the sale or exchange
of a capital asset held for more than 1 year, if and to the
extent such gain is taken into account in computing gross
income.” Though the statute does not define what is a sale or
exchange, the terms “sale” and “exchange” are given their
ordinary meaning. Helvering v. William Flaccus Oak Leather Co.,
313 U.S. 247, 249 (1941).
“It is well established that a compromise or collection of a
debt is not considered a sale or exchange of property because no
property or property rights passes to the debtor other than the
discharge of the obligation.” Nahey v. Commissioner, supra at
262; see also Pounds v. United States, supra at 349 (“And the
courts have universally recognized that mere collection of an
obligation, purchased or not, does not fit the ordinary meaning
of ‘sale or exchange’.”). In general, where property or property
rights come to an end and vanish, we have held that a sale or
exchange has not occurred. Leh v. Commissioner, 27 T.C. 892, 898
(1957), affd. 260 F.2d 489 (9th Cir. 1958). In this same line of
cases, we recently decided that the settlement of a lawsuit was
not a sale or exchange for purposes of section 1222(3). Nahey v.
Commissioner, supra.
In Nahey, two S corporations owned by the taxpayer purchased
the assets of a corporation, including a lawsuit with a value
that could not be ascertained. The taxpayer settled the lawsuit
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