No gain or loss will need to be recognized in the event a taxpayer exchanges common stock in a corporation solely for common stock in the same corporation, or if preferred stock is exchanged solely for preferred stock in the same corporation.
It is important to note that voting rights are not a factor when determining non recognition. Non recognition will apply even though voting stock is exchanged for nonvoting stock or nonvoting stock is exchanged for voting stock.
How the Exchange Works
This provision of the IRS tax code applies to an exchange between two individuals and to transactions between a stockholder and the corporation. The IRS will not allow non recognition if stock is exchanged for bonds, or preferred stock is exchanged for common stock and vice versa.
The IRS will also not allow non recognition in the event common stock in one corporation is exchanged for common stock in another corporation.