that sentence as restricting "the occurrence of realization to situations where exchanged property differs materially in kind or extent." This appears to be equivalent to the converse of the language that is actually in the regulation.14 Our disagreement with respondent's conclusion does not rest on whether his regulation should be given the interpretation for which he contends. Rather, assuming that respondent is correct in his interpretation of his regulation, we conclude that the property petitioner acquired differs "materially *** in kind" from the property petitioner

another person the property is converted into cash or into property (a) that is essentially different from the property disposed of, and (b) that has a market value. In other words, both (a) a change in substance and not merely in form, and (b) a change into the equivalent of cash, are required to complete or close a transaction from which income may be realized. By way of illustration, if a man owning ten shares of listed stock exchanges his stock certificate for a voting trust certificate, no income is realized, because the conversion is merely in form; or if he exchanges his stock for stock in a small, closely held corporation, no income is realized if the new stock has no market value, although the conversion is more than formal; but if he exchanges his stock for a Liberty bond, income may be realized, because the conversion is into independent property having a market value.

We note that this regulation explicitly states that there cannot be realization unless there is "a change in substance", and implies that a change in substance can only come from a conversion "into cash or into property (a) that is essentially different from the property disposed of". The present regulation (note 12 supra) omits any statement that there cannot be a realization unless there is a change in substance. Since respondent changed this part of the language of the regulation, one may reasonably infer that respondent intended to change the meaning of the regulation. See Zuanich v. Commissioner, 77 T.C. 428, 443 n. 26 (1981). Since the change in the language is to omit in the current regulation, the earlier regulation's relatively clear statement that realization requires an essential difference between the property acquired and the property disposed of, it may fairly be concluded that respondent has eliminated this essential-difference requirement.

14For an illustration of the danger of assuming that converses are equivalents, see the following colloquy from "A Mad Tea Party":

The Hatter opened his eyes very wide on hearing this; but all he said was "Why is a raven like a writing-desk?"

"Come, we shall have some fun now!" thought Alice."I'm glad they've begun asking riddles-I believe I can guess that," she added aloud.

"Do you mean that you think you can find out the answer to it?" said the March Hare. "Exactly so," said Alice.

"Then you should say what you mean," the March Hare went on.

"I do," Alice hastily replied; "at least-at least I mean what I say-that's the same thing, you know."

"Not the same thing a bit!" said the Hatter. "Why, you might just as well say that 'I see what I eat' is the same thing as 'I eat what I see'!"

"You might just as well say," added the March Hare, "that 'I like what I get' is the same thing as 'I get what I like'!"'

"You might just as well say," added the Dormouse, which seemed to be talking in its sleep, "that 'I breathe when I sleep' is the same thing as 'I sleep when I breathe'!"

"It is the same thing with you," said the Hatter, and here the conversation dropped, and the party sat silent for a minute, while Alice thought over all she could remember about ravens and writing-desks, which wasn't much.

C.L. Dodgson, The Complete Works of Lewis Carroll (Alice's Adventures in Wonderland) 75-76 (Modern Library ed.).

transferred. We conclude, further, that the cases and concepts to which respondent directs our attention either are distinguishable or support petitioner's conclusion.

In support of respondent's interpretation of the regulation, respondent cites a series of cases, the best known of which is Eisner v. Macomber, 252 U.S. 189 (1920), in which courts have held that there was no taxable income from a transaction that left the stockholder with essentially the same position that the stockholder had in a corporation before the transaction in question. See Towne v. Eisner, 245 U.S. 418 (1918); Weiss v. Stearn, 265 U.S. 242 (1924).15

Respondent devotes a substantial portion of his brief to the history of predecessor statutes to section 1001, beginning with section II, B of the Tariff Act of 1913, Pub. L. 63-16, 38 Stat. 114, 167.16 Various nonrecognition provisions begin in 1921 and continue through the Revenue Acts of 1926, 1928, 1932, 1936, and 1938, and in the Internal Revenue Codes of 1939 and 1954. Respondent summarizes his position as follows:

In limiting the realization of gains and losses to exchanges involving materially different property, Treas. Reg. sec. 1.1001-1(a) is a vestige of the prior regulations and early Revenue Acts and reflects a position that gain or loss arises upon a change in the substance, not merely in the form, of the taxpayer's property. In general, sections 165 and 1001 require that gain or loss be realized by a specific event involving either a conversion or exchange of property. The requirement embodied in Treas. Reg. sec. 1.1001-1(a) that a conversion or exchange take place before gain or loss is sustained implies that a material change in the taxpayer's property is necessary before a realization of gain or loss occurs under section 1001.

Respondent claims that his position is supported by Shoenberg v. Commissioner, 77 F.2d 446 (8th Cir. 1935), affg. 30 B.T.A. 659 (1934), and Horne v. Commissioner, 5 T.C. 250 (1945).

15 We may pass over the irony that respondent now relies on cases in which he had earnestly argued that taxpayers had realized gains-and should be currently taxed on them-even though the taxpayers had received only proportionate stock dividends. In the instant case, the shoe appears to be on the other foot.

16 Sec. II, B of the Tariff Act of 1913 provides, in pertinent part, as follows:

"B. That, subject only to such exemptions and deductions as are hereinafter allowed, the net income of a taxable person shall include gains, profits, and income derived from * * sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in real or personal property, also from *** dividends, *** or gains or profits and income derived from any source whatever * *

In Horne, for the conceded purpose of establishing a tax loss (5 T.C. at 251), the taxpayer sold a certificate representing his membership (or "seat") in the New York Coffee & Sugar Exchange, Inc. Eight days before the sale, in order to assure uninterrupted membership in the exchange and in the use of the exchange's facilities, he bought another certificate that differed from the first only by identifying number on the certificate. Respondent contended in Horne that the wash sales provision (sec. 118, I.R.C. 1939) applied. We rejected that argument (5 T.C. at 253-254). Nevertheless, we concluded that the claimed deduction must be disallowed, following and quoting extensively from Shoenberg and summarizing the latter case's teaching as follows (5 T.C. at 254):

Underlying all of the loss deduction provisions of the statute is the concept of a financial detriment actually suffered by the taxpayer. Before any deduction is allowable there must have occurred some transaction which when fully consummated left the taxpayer poorer in a material sense. That principle was thoroughly expounded by the court in Shoenberg v. Commissioner, (C.C.A., 8th Cir.), 77 Fed. (2d) 446, affg. 30 B.T.A. 659; certiorari denied, 296 U.S. 586. There the taxpayer, for the purpose of establishing a tax loss, sold shares of stock through a broker at less than their cost and at the same time had the broker purchase a like number of the same shares for a wholly owned corporation. After the expiration of 30 days he then had the corporation transfer the shares back to him. In sustaining our disallowance of the loss deduction claimed the *** [Court of Appeals] said:

"Among the transactions or identifiable events which may operate to realize and fix a loss, the most commonly occurring is a sale of the property. Here there was an actual sale of these shares, and, if our examination must stop with that sale, this loss is conclusively shown. The questions here are whether we can consider the entire situation which comprehends this sale, the purchase by the Globe Investment Company and the sale by it to the taxpayer; and, if we can, the effect thereof upon the above loss as being a deductible loss."

In our penultimate paragraph in Horne, we stated as follows (5 T.C. at 255-256):

Putting aside other considerations, the persuasive fact is that after consummation of the plan which petitioner had put into operation eight days previously he stood in exactly the same position as before, except that he was out of pocket $100, the difference between what he paid for his new certificate and what he received for his old one. One "seat" was exactly like another. As to how the $100 should be treated for tax purposes we are not now required to decide. Petitioner never divested

himself of the rights which he enjoyed by reason of his membership in the exchange, and never intended to do so. Although he went through the form of purchasing one certificate and selling another, the result was the same as if he had exchanged his certificate for that of another member. The deduction of a loss on such an exchange, that is, an exchange of property held for productive use in trade or business for property of a like kind to be held for such use, is expressly denied by sec. 112(b)(1) of the Internal Revenue Code [of 193917].

In Shoenberg, the taxpayer, through his wholly owned corporation, was at all times in total control of shares of stock, indistinguishable from each other, and at the end of a short period of time was exactly where he started. In Horne, the taxpayer's position with respect to the asset, i.e., the exchange membership represented by both certificates, never changed.

In the instant case, in contrast, petitioner exchanged participations in some loans for participations in other loans. Although the loans were similar, there were important differences. Specifically, the loans had different obligors and were secured by different pieces of realty. The subsequent history of payments on the loans (see table 6 supra) shows that the transactions were real, not feigned, and that the assets received were not the same as the assets given up. In the instant case (unlike Shoenberg and Horne), when the smoke cleared away petitioner was left with assets that were different (and performed differently) from what petitioner had at the start. Thus, application of the principle of Horne and Shoenberg to the December 31, 1980, transactions leads us to conclude that the property is materially different, and petitioner is entitled to the claimed deductions.

Both sides urge us to be guided by Hanlin v. Commissioner, 38 B.T.A. 811 (1938), affd. 108 F.2d 429 (3d Cir. 1939). In Hanlin we applied the wash sales provision, section 118 of the Revenue Act of 1932,18 to three sets of transactions. We held that municipal bonds of the same obligor (Philadelphia) with insignificant differences in maturity dates were substantially identical securities. 38 B.T.A.

17In the instant case, respondent expressly concedes the inapplicability of sec. 1031, the successor to sec. 112(b)(1), I.R.C. 1939.

18In the instant case, respondent expressly concedes the inapplicability of sec. 1091, the successor to sec. 118 of the Revenue Act of 1932.

at 813-818. We held that Federal Land Bank bonds of the same obligor (Omaha Federal Land Bank) with insignificant differences in maturity dates were substantially identical securities. 38 B.T.A. at 818-819.

However, we also held that bonds of the St. Louis and Wichita Federal Land Banks were not substantially identical to bonds of the Louisville Federal Land Bank. 38 B.T.A. 819-820. We rested our decision on the difference in obligors and the difference in assets underlying the promises of the different obligors. The Circuit Court of Appeals for the Third Circuit affirmed our conclusions as to all three sets of securities except that, with regard to the St. Louis, Wichita, and Louisville Federal Land Banks, the Circuit Court of Appeals focused more on the differing underlying securities than on the differing obligors. 108 F.2d at 431.

In the instant case, the obligors are different and the underlying securities are different. The Hanlin standards lead us to conclude that the mortgage participations that petitioner acquired differ materially from the mortgage participations that petitioner transferred.

Respondent insists that the Hanlin criteria support his position in the instant case. He points out that the Circuit Court of Appeals in Hanlin focused on the geographic differences between farmland near Wichita and farmland near Louisville, and directs our attention to the fact that "The geographical variations in risks of farm property which were critical to the decision in Hanlin are not present in this case, which involves residential real estate." Respondent overlooks the fact that Hanlin involved Federal Land Banks, each of which was at least secondarily liable on the debts of the others (108 F.2d at 431), while the instant case involves individual borrowers who apparently are each liable on only their own obligations. Respondent also overlooks the fact that, in Hanlin, each bond was secured by a mass of mortgages, so that only a regional disaster could affect the security of the bonds. Thus, in Hanlin, the courts focused on regional differences. In the instant case, each obligation apparently is secured by one residential property, so that a misfortune affecting one family or one property could affect what happens to that obligation without affecting any of the other obligations. We conclude that