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§ 2.15 TAX TREATMENT OF INCOMEStock Exchanges. 59 Corporations do not recognize gain on the receipt ofmoney or property acquired in exchange for stock in the corporation. Becausestock represents the economic cost of investment by stockholder-owners in thecorporation, and not economic revenues, it would be unfair to tax such shareholderbasis in the corporate business entity.Involuntary Conversions. 60 When property is involuntarily or compulsorilyconverted—through destruction, theft, seizure, condemnation (or threat thereof),and the like—into similar or related property, gain is not recognized. It is consideredunfair to impose a taxable gain on a taxpayer who suffers an unintendedand involuntary conversion of property.Congress has also chosen to discourage or penalize certain realization transactions.To accomplish this, losses are not recognized and are, therefore, unavailableto offset other taxable income of the taxpayer. An example are straddles ofpersonal property, especially stocks. The federal tax law denies a taxpayer therecognition of a loss to the extent the loss exceeds unrecognized gain. 61 Theabuse policed by the section is whipsawing of the federal treasury. It is unfair todefer (not recognize currently) taxable gain on one part of a straddle transaction,and yet recognize a current loss on another part to offset income and furtherreduce current tax liability.§ 2.15 TAX TREATMENT OF INCOMEIncome (a taxpayer’s taxable income) is subject to progressive taxation. That is,income is taxed at higher marginal rates as the level of a taxpayer’s incomerises. The marginal rate of taxation refers to a taxpayer’s rate of taxation withina defined range of income, such as from zero to $1,000. The range of income(zero to $1,000, for example) is termed an income tax bracket. A lower marginalrate of taxation is imposed on low-income brackets, while higher marginalrates of taxation are imposed on high-income brackets. The effective rate of taxationis the average tax rate over the range of income subject to the differingmarginal rates.Tax rates for individual taxpayers are divided into four categories: single,married filing jointly, married filing separately, and head of household. The rateof tax on each category is different. There are also separate tax rates for corporationsand estates.Congress, in 2001, created a 10 percent income tax bracket for a portion oftaxable income that was previously taxed at 15 percent; there were four other taxbrackets. 62 At that time, the other brackets were 28, 31, 36, and 39.6 percent. 63The bracket amounts were to be phased down over six years.Further tax reduction legislation was signed into law in 2003, which reducedthe top four income tax brackets for individuals to 25, 28, 33, and 35 percent,59 IRC § 1032.60 IRC § 1033.61 IRC § 1092.62 EGTRRA § 101.63 IRC §§ 1(i)(1)(A), (B), 1(i)(2). 45