Hamlet the Prince <Hamlet_the_Prince[at]att.net> wrote:

- quote -

Excellent point. But I am under the impression that the
poster ~thinks~ this is a (partially) tax free reorg, so
that fact should indeed be confirmed.

MTW

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Barry is correct if this transaction is a fully taxable
exchange. Mike is correct if the stock for stock exchange is
part of a tax free reorganization. The hypothetical posed
does not specify whether the exchange is part of a tax free
reorganization.

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Barry Margolin <barmar[at]alum.mit.edu> wrote:

- quote -

Consider this example:

I own two lots of ABC Company stock. The first lot of 100
shares was acquired for 1 cent per share (total basis
$1.00). The second lot of 100 shares was acquired for $1.00
per share (total basis $100.00).

XYZ Company enters the picture and acquires ABC by paying 50
cents cash per share PLUS an equivalent number of shares of
XYZ stock with a value of 50 cents per share. Thus, I have
received consideration equal to $1.00 per share for my ABC
stock.

If both lots were considered together, the results would be:

$100 cash + $100 value of XYZ = $200, less basis of $101
($1 + $100) = equal $99 gain.

However, if considered separately:

$50 cash + $50 value of XYZ = $100, less basis of
$1.00 = $99 gain LIMITED TO CASH RECEIVED OF $50.00 !!!

plus:

$50 cash + $50 value of XYZ = $100, less basis of
$100 = zero gain/loss.

So, if combined, I would have a $99 taxable gain. But, if
considered separately, my taxable gain would only be $50,
with the difference translating into a basis adjustment to
the shares of XYZ received.

(I think... <g> )

MTW

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- quote -

I don't know where you got the misguided idea that fairness
has anything to do with this. You must look at the
documents given you as a part of the takeover.

That's the only place you're going to find the answers to
reporting questions. If you can't find the paperwork, check
with Investor Relations.

There is NO "one size fits all" answer.

Phil Marti
Topeka, KS

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"MTW" <mtwingcpa[at]yahoo.com> wrote:
- quote -

The tax is calculated on the net gain or loss of all your
stock transactions. This should be the same whether you
enter the lots separately or combine them with "various" as
the purchase dates.

--
Barry Margolin, barmar[at]alum.mit.edu
Arlington, MA

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Brant Hahn <bhahn3[at]purdue.edu> wrote:

- quote -

This raises an interesting question for which I have never
received a convincing answer: If you own multiple lots of the
acquired stock, can you calculate your tax consequences for each
lot SEPARATELY? Or, must you "homogenize" them into a single lot
for this purpose?

I would certainly expect that if the different lots reflect
different ownerships (ie: some shares held separately, some
jointly with spouse, some in IRA, etc.) that you would treat each
such lot separately. However, if the lots in question simply
reflect different acquisitions at different prices at different
times, I'm not so sure.

Can anyone cite something definitive on this point? I've asked a
couple of times at the Fairmark website but have never received
an answer.

- quote -

No, I believe you would report the cash PLUS the FMV of shares
received as the sales proceeds. Your cost basis for Schedule D
purposes ~might~ have to be adjusted upward so that the resulting
gain does not exceed the cash received. If that happens, the
basis of new shares received would be reduced by an equivalent
amount. (I think.)

MTW

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I posted this earlier in the year but no one responded, so I
thought I'd give it another shot:

I owned shares in Company A. Company A was acquired by
Company B in a deal where both cash and Company B stock were
received in exchange for Company A stock. The principle
seems to be that if the value of Company B stock received is
equal to or greater than the original cost basis for the
Company A stock being exchanged, then the cash received gets
taxed fully, and the old cost basis for Company A stock gets
transfered over to become the new cost basis for Company B
stock. Simple enough.

BUT, if the value of the Company B stock received is *less*
than the original cost basis of the Company A stock being
exchanged, then it is unfair to fully tax the cash received.
So I am allowed to reduce the amount of the cash that is
taxed by the difference between that original basis for
Company A stock and the value of the Company B stock
received. And then my basis in Company B stock going
forward is reduced from my original basis in Company A stock
by the amount of this difference.

I have lots that fall into each of these two categories, so
I want to make sure that I report this correctly on Schedule
D at the end of the year. If I'm understanding the law, I
would think that in each case, I would report this as a sale
of the Company A stock with the sales price being equivalent
to the cash received. Then, in the first case above, I
would report my basis on that sale to be 0, and in the
second case, I would report my basis to be the difference
between my original cost basis in Company A stock and the
value of the Company B stock I received. And, in all above
references to the value of Compnay B stock, the closing
market price on the day the exchange happened would be what
determines the value. And finally, this exchange date would
be the new date of acquisition for the Company B stock for
the terms of evaluating short-term vs. long-term capital
gains on future sales of that stock. Do I have all of this
(any of this?) correct?

-Thanks, Brant

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