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Posted by NadCixelsyd on February 7, 2008, 5:31 pm
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Say I own 200 shares of ABC with a cost basis of $3333.33. Due to a
merger, those 200 shares of ABC are exchanged for 301.45 shares of
XYZ. My basis in XYZ would be $11.05765 per share.
Assume XYZ is selling for $40 at the time. Since shares are only
integers, I get 301 shares of XYZ and $18.00 cash in lieu of the 0.45
shares. What's my basis for the $18.00 cash sale and what's my basis
for the 301 shares of XYZ?
I've always assumed that everything is apportioned: My 301 shares
have a basis of $3328.35 and I have a profit of $13.02 ($18.00 -
$4.98) for the cash-in-lieu.
My broker reports the $18.00 as a sale with zero basis on my monthly
statement. They then keep the entire $3333.33 as the basis for my 301
shares of XYZ on monthly statements going forward.
I realize we're not talking about a bazillion dollars here since it's
not Berkshire Hathaway.
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Posted by Dan Lanciani on February 7, 2008, 6:15 pm
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nadcixelsyd@aol.com (NadCixelsyd) writes:
| Say I own 200 shares of ABC with a cost basis of $3333.33. Due to a
| merger, those 200 shares of ABC are exchanged for 301.45 shares of
| XYZ. My basis in XYZ would be $11.05765 per share.
|
| Assume XYZ is selling for $40 at the time. Since shares are only
| integers, I get 301 shares of XYZ and $18.00 cash in lieu of the 0.45
| shares. What's my basis for the $18.00 cash sale and what's my basis
| for the 301 shares of XYZ?
|
| I've always assumed that everything is apportioned: My 301 shares
| have a basis of $3328.35 and I have a profit of $13.02 ($18.00 -
| $4.98) for the cash-in-lieu.
That's what I always assumed as well.
| My broker reports the $18.00 as a sale with zero basis on my monthly
| statement. They then keep the entire $3333.33 as the basis for my 301
| shares of XYZ on monthly statements going forward.
And that's what Fidelity has been doing for me lately. My initial
thought was that they might know best and that it would be a bad
idea to take a position that contradicted theirs. However, now
that they are (supposedly) computing basis on fixed-income securities
I have to wonder just what their strategy is. It appears for munis
that they take premium into account (in the most tax-pessimistic way)
while ignoring accrued OID. Thus their approach could be characterized
as "maximize current taxes" (which is probably safe for them). Since
they won't provide details of how they calculate basis it's hard to
tell.
Dan Lanciani
ddl@danlan.*com
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Posted by joeu2004 on February 7, 2008, 8:48 pm
Please log in for more thread options > Say I own 200 shares of ABC with a cost basis of $3333.33.
> Due to a merger, those 200 shares of ABC are exchanged for
> 301.45 shares of XYZ. My basis in XYZ would be $11.05765
> per share.
Only if you purchased all 200 shares of ABC at the same price.
Otherwise, you allocate the basis of each lot of ABC purchased
at the same time and at the same price to the prorated number
of XYZ shares.
For example, suppose you bought ABC in lots of 50 for $750
($15/share), 100 for $2000 ($20/share) and 50 for $583.33
(about $11.67/share).
Then you would divide the 301.45 shares of XYZ into the
following corresponding lots (each with the ABC purchase
date): 75.3625 shares [301.45 * (50/200)] with $750 basis
(about $9.95/share), 150.725 shares [301.45 * (100/200)]with
$2000 basis (about $13.27/share), and 75.3625 shares
[301.45 * (50/200)] with $583.33 basis (about $7.74/share).
> I've always assumed that everything is apportioned: My 301
> shares have a basis of $3328.35 and I have a profit of $13.02
> ($18.00 - $4.98) for the cash-in-lieu.
Again, only if you purchased all 200 shares of ABC at the same
price.
Otherwise, the cash-in-lieu is for shares sold in FIFO order. So
having allocated the basis per above, you sold 0.45 shares from
the first lot with a basis of 0.45/150.725 of $750 -- about $2.24.
So your Sched D profit would be $15.76 ($18 - $2.24) less any
cost for the cash-in-lieu transaction. (I have never heard of any.
I'm just mentioning it for completeness.)
Also, you would decrease that lot of XYZ shares to 150.275
(150.725 - 0.45), and you would reduce that lot's basis to
$747.76 ($750 - $2.24).
> My broker reports the $18.00 as a sale with zero basis on
> my monthly statement.
That is a common practice. You have the choice of ignoring
that and doing the "correct" thing. Or you could simply follow
your broker's practice, especially if you have a written statement
to that effect.
If you go the zero-basis approach, be sure to adjust the
arithmetic above. That is, allocate 301 shares of XYZ to the
various lots, and keep the full original basis with each lot.
--
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<< The foregoing was not intended or written to be used, >>
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Posted by dapperdobbs on February 8, 2008, 2:10 am
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> > My broker reports the $18.00 as a sale with zero basis on
> > my monthly statement.
The acquired company should tell you how to handle the cash in lieu.
The amounts are usually not large. I'm surprised at your (broker's)
statement, because my recollection is that cash-in-lieu associated
with the acquisition of Lucent Technologies (years ago) was officially
treated as a reduction in cost basis of the remaining shares (i.e.
taxes deferred).
Brokerage houses are not always right, and you can provide the IRS
with a reconciliation showing the correct numbers and the basis for
those.
1099 B $1,018
Less: Cash in lieu $18
Total sales $1,000
Cash in lieu carried forward as reduction of cost basis $18.
(Copy of company notification to shareholders enclosed.)
Then reduce your cost basis as appropriate and carry it forwards,
reporting the reduction on the date of sale.
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<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
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<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
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Posted by joeu2004 on February 8, 2008, 9:25 am
Please log in for more thread options > my recollection is that cash-in-lieu associated with the
> acquisition of Lucent Technologies (years ago) was officially
> treated as a reduction in cost basis of the remaining shares
> (i.e. taxes deferred).
No, it wasn't, if you are referring to the Alcatel-Lucent merger.
To refresh your memory, go to the Investors Tax Basis
Worksheets link at www.alcatel-lucent.com -- specifically the
worksheeet at
http://www.alcatel-lucent.com/wps/DocumentStreamerServlet?LMSG_CABINET=Docs_and_Resource_Ctr&LMSG_CONTENT_FILE=Financial_Info/Calculators/Alcatel-Lucent_Tax_Basis_Worksheet.pdf
.
(I hope that link survives the moderator's posting filter.)
Theirs is a much simpler example than the one I presented --
a single purchase lot. But you will see that the cash-in-lieu is
handled exactly as I described.
They computed the per-share basis in a manner similar to what
I did. (I prefer to work with fractions of the total basis.) Then,
following their step numbers:
7. $15.37 New tax basis per Alcatel-Lucent share
8. 0.52 Fractional share received
9. $ 7.99 Multiply fractional share by new tax basis (#8 * #7)
10. $ 6.91 Amount of fractional share check received
11. $ 7.99 Tax basis for fractional share (#9)
12. ($1.08) Subtract fractional tax basis from fractional check
amount (#10 - #11)
13. ($1.08) Gain (loss) frmo fractional sale (#12)
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<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
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<< Copyright (2007) - All rights reserved. >>
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