Exchange of Shares


P

Peter

How do I handle an 'exchange' of shares in Quicken. Both companies still
exist, but my broker has exchanged 1000 shares of company A for 1270 shares
of company B. It is not a take-over or spin-off. There is no capital gain
involved in the exchange, though there has been one.

Thanks for any assistance

Peter
 
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R

R. C. White

Hi, Peter.

Your BROKER exchanged the shares? Why? Did you tell him to?

In the tax code, gain or loss is recognized on "sale or exchange". In other
words, an exchange is taxed exactly like a sale. There are a few
strictly-described exceptions, such as when you trade in an old business
truck for a new one (IRC Sec. 1231, exchange of "like kind" property;
marketable securities are specifically excluded from this section). When
one company acquires another, the lawyers make sure to dot the i's and cross
the t's so that the exchange of shares in the acquired company for shares in
the acquiring company will qualify for "tax-free" (actually tax-deferred)
treatment under a specific code section.

If you simply traded Ford stock for GM stock, then the exchange must be
reported on your Schedule D. Your "basis" (normally your cost) in the old
shares is known, of course. The selling price will be the Fair Market Value
on the date of the exchange. Use the FMV of the shares given up or those
received, whichever can be more confidently measured. Presumably, the FMV
of each batch of stock will be identical.

If you have any questions, first ask your broker for a full description of
the transaction, including FMV of the shares involved. Then ask if there
are any IRC sections that would provide for treatment as other than fully
taxable. Finally, check with your own CPA or tax attorney to be sure you
are correctly reporting the exchange. Remember that only YOU are
responsible for YOUR tax return. Your broker is not.

RC
 

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