Need Help: How to handle stock merger for CASH and stock. See inside.


T

theloneranger

How do I handle a merger for cash and stock.

Details:
I hold 1000 shares of Company Alpha valued at $5000.00.
Company Beta took over company Alpha as follows:
600 shares were exchanged for Company Beta at the rate of 3 for 1.
Therefore I received 200 shares of Company Beta stock. Also, Company
Beta purchased the remaining 400 shares of Company Alpha for $250.00

Tax Law: I know that since I had no choice in the merger and had to
accept the stock and cash, that the cash is fully taxable and the
value of the Company Beta new shares is the same total value as
Company Alpha shares ($5000.00).

I entered the transaction in Quicken as a stock for stock exchange,
showing the 1000 Shares of Company Alpha, valued at $5000.00, being
exchanged for 200 shares of Company Beta, valued at the same $5000.00

QUESTION: How do I enter the cash I received for the remaining 400
shares of Company A of $250.00 as a capital gain with a zero basis for
the shares sold to Company Beta? I can transfer the cash in but then
the Capital Gains transaction will not reflect the cash part of the
transaction.

I hope I did not make this too complicated.
 
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F

Fred Smith

You need to post the sale before the takeover.

Sell 400 shares of Alpha for $250. Then post a takeover of 600 Alpha for 200
Beta.

This will get you the correct cost base for Beta
 
B

bob

Thank you for the response but there is still one question remaining.

When I post the sale before the takeover, how do I indicate that the
cost of the 400 shares is zero (the total cost of the shares held
before the takeover should not be allocated to the shares to be sold),
and thus allowing me to pay tax on the ENTIRE CASH received of
$250.00?

Then the remaining shares retains its full cost basis both before and
after the takeover.

Bob
theloneranger at verizon dot net
=======================================================================
You need to post the sale before the takeover.

Sell 400 shares of Alpha for $250. Then post a takeover of 600 Alpha for 200
Beta.

This will get you the correct cost base for Beta
 
B

bob

Thank you for the response but there is still one question remaining.

When I post the sale before the takeover, how do I indicate that the
cost of the 400 shares is zero (the total cost of the shares held
before the takeover should not be allocated to the shares to be sold),
and thus allowing me to pay tax on the ENTIRE CASH received of
$250.00?

Then the remaining shares retains its full cost basis both before and
after the takeover.

Bob
theloneranger at verizon dot net
=======================================================================
You need to post the sale before the takeover.

Sell 400 shares of Alpha for $250. Then post a takeover of 600 Alpha for 200
Beta.

This will get you the correct cost base for Beta

--
Regards,
Fred


How do I handle a merger for cash and stock.

Details:
I hold 1000 shares of Company Alpha valued at $5000.00.
Company Beta took over company Alpha as follows:
600 shares were exchanged for Company Beta at the rate of 3 for 1.
Therefore I received 200 shares of Company Beta stock. Also, Company
Beta purchased the remaining 400 shares of Company Alpha for $250.00

Tax Law: I know that since I had no choice in the merger and had to
accept the stock and cash, that the cash is fully taxable and the
value of the Company Beta new shares is the same total value as
Company Alpha shares ($5000.00).

I entered the transaction in Quicken as a stock for stock exchange,
showing the 1000 Shares of Company Alpha, valued at $5000.00, being
exchanged for 200 shares of Company Beta, valued at the same $5000.00

QUESTION: How do I enter the cash I received for the remaining 400
shares of Company A of $250.00 as a capital gain with a zero basis for
the shares sold to Company Beta? I can transfer the cash in but then
the Capital Gains transaction will not reflect the cash part of the
transaction.

I hope I did not make this too complicated.
-------------

Bob

Email Address:
TheLoneRanger at Verizon dot net
 
O

Oilcan

I would treat the $ like a Misc Income . That way your basis would not
be adjusted. If you load your transactions to Turbo Tax or Tax Cut,
you might have to create a category to get the correct mapping for tax
purposes..
 
F

Fred Smith

I can't answer your question, because I don't agree. Your original cost base
should be pro-rated to the cash and the Beta shares. I don't agree that the
remaining shares retain the full cost basis.

--
Regards,
Fred


bob said:
Thank you for the response but there is still one question remaining.

When I post the sale before the takeover, how do I indicate that the
cost of the 400 shares is zero (the total cost of the shares held
before the takeover should not be allocated to the shares to be sold),
and thus allowing me to pay tax on the ENTIRE CASH received of
$250.00?

Then the remaining shares retains its full cost basis both before and
after the takeover.

Bob
theloneranger at verizon dot net
=======================================================================
 
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O

Oilcan

I do agree with you Fred - example Cash-In-Lieu of fractional shares.
But what if this is a special payout (which some companies call a
dividend)? I guess we don't have enough information for what the $250
represents.
 
F

Fred Smith

Possible, but the payment must represent something with respect to the shares.
It could be a dividend or return of capital, which you would post accordingly.

As you said, you need to find out the status of the income before you can post
it properly.
 
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B

bob

I can't answer your question, because I don't agree. Your original cost base
should be pro-rated to the cash and the Beta shares. I don't agree that the
remaining shares retain the full cost basis.
The answer is that if you have a stock for stock transaction AND are
forced to sell those shares not taken over in the stock for stock
transaction, then the basis for the shares exchanged in the merger
retain the TOTAL original cost basis and the cash given for those
shares not taken in the stock for stock merger have a basis of zero.
The entire cash is a 100% capital gain.

If you had a choice whether to sell the remaining shares or not, then
the allocation of the cost basis would be proper.


-------------

Bob

Email Address:
TheLoneRanger at Verizon dot net
 

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