Such  a  transaction  is  purely  a  capital  transaction  and
the  income  of  the  corporation  is  not  directly  decreased
by  reason  of  the  sale  of  the  stock  at  a  price  less  than  its
par  value.**

Exchange  of  Stock.  Where  in  a  case  of  merger
stockholders  of  one  corporation  exchange  their  stock  for
stock  of  the  corporation  resulting  from  the  merger  and
receive  a  par  value  less  than  the  par  value  of  the  old
stock,  it  is  held  that  the  transaction  constitutes  a  sale
for  income  tax  purposes,  and  that  a  deduction  may  be
I'laimed  for  any  loss  measured  by  the  difference*  between

IS  See  Chapter  20.
14  T.  D.  2090.
336  FEDERAL   INCOME   TAX

the  value  of  the  old  stock  on  March  1,  1913,  (jor  the  cost,
if  purchased  subsequent  to  that  date)  and  the  value
at  which  the  same  stock  was  given  in  exchange  for  stock
of  the  company  resulting  from  the  merger.  If  the  stock
of  the  new  corporation  has  a  market  value  at  or  about
the  time  of  the  merger,  it  has  been  indicated  that  the
Treasury  Department  will  hold  the  market  value  to  be
equivalent  of  cash  in  determining  the  selling  price.
