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 Neither the language nor the history of the Code indicates whether and to what extent property exchanged must differ to count as a 'disposition of property' under § 1001(a). Nonetheless, courts readily agree that an exchange of property gives rise to a realization event under § 1001(a) only if the properties exchanged are 'materially different.' The Commissioner himself has by regulation construed § 1001(a) to embody a material difference requirement: 'Except as otherwise provided . . . the gain or loss realized from the conversion of property into cash, or from the exchange of property for other property differing materially either in kind or in extent, is treated as income or as loss sustained.' Treas. Reg. § 1.1001-1, 26 CFR § 1.1001-1 (1990) (emphasis added). 


Treasury Regulation § 1.001-1 is consistent with our landmark precedents on realization. In a series of early decisions involving the tax effects of property exchanges, the Court made clear that a taxpayer realizes taxable income only if the properties exchanged are 'materially' or 'essentially' different. See United States v. Phellis, 257 U.S. 156, 173 (1921); Weiss v. Stearn, 265 U.S. 242, 253-254 (1924); Marr v. United States, 268 U.S. 536, ...

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