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I will attempt to show in this article that the cases and rulings dispensing with the need for a sale or exchange are unjustified under the statutory scheme and prevailing capital gain jurisprudence, and further that such holdings constitute bad policy. Part II will set forth a number of examples, based largely on decided cases, where it has been held or contended that recoveries in excess of basis qualify for capital gain treatment even though the taxpayer did not sell or exchange the property. These cases will illustrate the contexts in which this issue arises and will provide a basis for analysis. Part III will review how the courts have construed the phrase “sale or exchange.” Part IV will explore in depth the policy issues involved in according capital gain treatment to recoveries when no sale or exchange occurs. Part V will consider whether the full amount of the recovery should be taxed when received or rather (as under current law) treated as a return of capital with only the excess over basis treated as taxable gain. Part VI will apply the analysis developed in this article to the examples in Part II. Finally, Part VII will consider whether § 1234A provides, as some have suggested, an additional basis for claiming capital gain treatment for a recovery for damage to property.