How To Report Stock Exchange In Merger?


W

William Brenner

Over the years, my wife accumulated 418.619 shares of Nicor, Inc. In December 2011, Nicor was merged into AGL Resources (AGL). Each Nicor share was exchanged for $21.20 in cash plus 0.8382 share o AGL. AGL shares were valued at $53 for purposes of the merger.

In late December, she received a check for $8,910.74. (The difference was for the partial Nicor share.) and 350 shares of AGL.

Question 1: How do we report this on our 2011 return? The total cost basis of the Nicor shares was $15,575.04.

Question 2: It is likely that we will sell the AGL shares in 2012. How would that be reported?
Would any gain be long term?

I queried Wells Fargo, which handled this transaction as to the tax consequences. They said to
consult with our tax advisor. So here I am -- and happy to be back.

Thank you for your help.

Bill Brenner
 
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J

JoeTaxpayer

Over the years, my wife accumulated 418.619 shares of Nicor, Inc. In December 2011, Nicor was merged into AGL Resources (AGL).
Each Nicor share was exchanged for $21.20 in cash plus 0.8382 share o AGL. AGL shares were valued at $53 for purposes of the merger.
In late December, she received a check for $8,910.74. (The difference was for the partial Nicor share.) and 350 shares of AGL.

Question 1: How do we report this on our 2011 return? The total cost basis of the Nicor shares was $15,575.04.

Question 2: It is likely that we will sell the AGL shares in 2012. How would that be reported?
Would any gain be long term?

I queried Wells Fargo, which handled this transaction as to the tax consequences. They said to
consult with our tax advisor. So here I am -- and happy to be back.
First, I trust you read http://tinyurl.com/joe120111 (This links to the
Tax Reporting Statement AGL publisher after the merger.)

Next - I show AGL traded at $39.48 on 12/9/11. It never traded as high
as $53. Who gave you that number?
 
I

ira smilovitz

First, I trust you read http://tinyurl.com/joe120111 (This links to the
Tax Reporting Statement AGL publisher after the merger.)

Next - I show AGL traded at $39.48 on 12/9/11. It never traded as high
as $53. Who gave you that number?
Based on the numbers provided, I assume the OP meant that the total consideration he received for each share of Nicor was $53, roughly $32 in stock and $21 in cash.

Ira Smilovitz
Leonia, NJ
 
J

JoeTaxpayer

Based on the numbers provided, I assume the OP meant that the total consideration he received for each share of Nicor was $53, roughly $32 in stock and $21 in cash.

Ira Smilovitz
Leonia, NJ
I was prepared to answer based on Ira's note, until I re-read the notice;
Any gain recognized generally will be long-term capital gain if, as of
the date of the merger, the shares of Nicor common stock exchanged in
the transaction were held for more than one year, unless the receipt of
cash has the effect of a distribution of a dividend under the provisions
of the Internal Revenue Code, in which case such gain will be treated as
a dividend to the extent of such United States holder's ratable share of
the undistributed earnings and profits of Nicor.

In my experience with mergers/takeovers, these declarations of the event
have always been a bit crisper, never had any doubt. This one, not so much.
 
W

William Brenner

No, I had not seen the document. I wish they had made it more understandable for amateurs like me.

The $53 share price was included in the merger announcement. It was not intended to reflect an actual AGL price, but to reflect the "bonus" received by Nicor shareholders. Start -- as they did -- with $37.93, the closing AGL price on the day preceding the merger announcement. Multiply that by 0.8382, the share exchange ratio. Add the $21.20 cash. The result is $52.99. Close enough.

I still have Questions:
For tax reporting purposes, what is the "selling price" of the Nicor shares? Is it $53?
What is the cost basis for the AGL shares?
Must the AGL shares be held for one year to qualify for long term treatment?

Thank you for your help

========================================= MODERATOR'S COMMENT:
I hope that linked document will help lead to a good answer.
 
W

William Brenner

Ira
That is correct. (See my response to joetaxpayer)
Also, please help me with the questions outlined in that post.
Thank you

Bill
 
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I

ira smilovitz

Over the years, my wife accumulated 418.619 shares of Nicor, Inc. In December 2011, Nicor was merged into AGL Resources (AGL). Each Nicor share was exchanged for $21.20 in cash plus 0.8382 share o AGL. AGL shares were valued at $53 for purposes of the merger.

In late December, she received a check for $8,910.74. (The difference was for the partial Nicor share.) and 350 shares of AGL.

Question 1: How do we report this on our 2011 return? The total cost basis of the Nicor shares was $15,575.04.

Question 2: It is likely that we will sell the AGL shares in 2012. How would that be reported?
Would any gain be long term?

I queried Wells Fargo, which handled this transaction as to the tax consequences. They said to
consult with our tax advisor. So here I am -- and happy to be back.

Thank you for your help.

Bill Brenner
I've looked at the documentation provided by AGL (http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MTE5OTk3fENoaWxkSUQ9LTF8VHlwZT0z&t=1) and here's what you need to do:

For each lot of Nicor stock, determine whether the value received ($54.33/share) is more than your cost basis for that lot.

1) If the value received is less than your cost basis for the Nicor shares, your cost basis in these AGL shares will be your cost basis in the Nicor shares less the cash received ($21.20/share).

2) If the value received is more than your cost basis for the Nicor shares and your cost basis in that lot of Nicor shares is more than $33.23, you recognize a capital gain for the difference between the value received and your cost basis. Your cost basis in the AGL shares will be $33.23 for each 0.8382 shares ($39.64/share).

3) If the value received is more than your cost basis for the Nicor shares and your cost basis in that lot of Nicor shares is $33.23 or less, you recognize a capital gain of $21.20 on each share of Nicor. Your cost basis in the each of the AGL shares from this lot will be your cost basis in each of the Nicor shares
in this lot/0.8382.

Capital gains will be short-term or long-term based on the acquisition date of the Nicor shares. The holding period for the AGL shares will be same as that of the Nicor shares.

Finally, after you complete all of this, you will probably have a fractional share of AGL. That will have been sold and you will receive a small amount of cash-in-lieu. This is reported as a separate sale using the earliest Nicor purchase date.

Ira Smilovitz
Leonia, NJ
 
W

William Brenner

Ira --

Thank you for your analysis of the AGI document and your take on what I should do.

There is a problem. The 418 Nicor shares were obtained via dividend reinvestment on a monthly or semi monthly basis starting in 1995. There are 179 transactions, many for partial shares and the rest for anywhere from 1+ to 4 Shares. It took me several hours to add up the last 418 shares and to extend the cost basis for each transaction. I cannot imagine the time and paper space necessary to process each lot and to report the results. (I had obtained a printout from Nicor that listed the transactions by date, the number of shares purchased and cost basis of the shares.)

The majority of the shares have cost bases of more than $33.23 but less than the value received. Can I lump these together and lump together those shares with cost bases less than $33.23? I would lump the latter shares first and then subtract the result from the totals to obtain the lump sums of the former shares. Doing it that way would ensure that I would have a result prior to
April 17. [GRIN]

There are only 3 transactions in which the value received was less than the cost bases, but these occurred in 2011, and would be reported separately as short term losses.

Thanks again for your excellent help.

Bill Brenner
 
I

ira smilovitz

Ira --

Thank you for your analysis of the AGI document and your take on what I should do.

There is a problem. The 418 Nicor shares were obtained via dividend reinvestment on a monthly or semi monthly basis starting in 1995. There are 179 transactions, many for partial shares and the rest for anywhere from 1+ to 4 Shares. It took me several hours to add up the last 418 shares and to extend the cost basis for each transaction. I cannot imagine the time and paper space necessary to process each lot and to report the results. (I had obtained a printout from Nicor that listed the transactions by date, the number of shares purchased and cost basis of the shares.)

The majority of the shares have cost bases of more than $33.23 but less than the value received. Can I lump these together and lump together those shares with cost bases less than $33.23? I would lump the latter shares first and then subtract the result from the totals to obtain the lump sums of the former shares. Doing it that way would ensure that I would have a result prior to
April 17. [GRIN]

There are only 3 transactions in which the value received was less than the cost bases, but these occurred in 2011, and would be reported separately as short term losses.

Thanks again for your excellent help.
I was going to begin my previous reply with "First, pour yourself a stiff drink." You know what the strict interpretation of the rules is. However, if it were my problem, I would probably take the easy way out and lump similar transactions together as you propose.

Ira Smilovitz
Leonia, NJ
 
W

William Brenner

Ira --

Thank you. Thank you. I promise to not quote you if questioned regarding lumping. I have
had that stiff drink -- perhaps 2 -- in celebration of your thought.

One more (I hope) question: Under paragraph 3) of your instructions, what do I enter in
Schedule D column (d) (Sales Price) in order for the gain to equal $21.20 per Nicor share?
The only way I can think of is to show the sale price as $21.20 per share more than the cost
basis. But that does not accurately reflect the actual sales price -- or does it?
(I assume that the cost basis will be as calculated;)

*****************************************************************************************************
MR MODERATOR:: I am back at MTM after a too long absence and am most impressed by the snazzy new format. Would you please give me a brief lesson on how to have the post to which I am replying
appear in my reply. Also, how to have my name appear in place of "me". I believe you have my
e-mail address. Thank you.
 
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I

ira smilovitz

Ira --

Thank you. Thank you. I promise to not quote you if questioned regarding lumping. I have
had that stiff drink -- perhaps 2 -- in celebration of your thought.

One more (I hope) question: Under paragraph 3) of your instructions, what do I enter in
Schedule D column (d) (Sales Price) in order for the gain to equal $21.20 per Nicor share?
The only way I can think of is to show the sale price as $21.20 per share more than the cost
basis. But that does not accurately reflect the actual sales price -- or does it?
(I assume that the cost basis will be as calculated;)
I would take a simpler approach. I would list the sales price as $21.20 per share with $0 cost basis and describe the transaction as "Gain due to merger of Nicor and AGL".
*****************************************************************************************************
MR MODERATOR:: I am back at MTM after a too long absence and am most impressed by the snazzy new format. Would you please give me a brief lesson on how to have the post to which I am replying
appear in my reply. Also, how to have my name appear in place of "me". I believe you have my
e-mail address. Thank you.
There is no need to do anything. "Me" only appears when you look at your own posts. I see "me" for my posts and William Brenner for yours.

Ira Smilovitz
Leonia, NJ
 
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