BulldogTom Posted March 31, 2009 Report Share Posted March 31, 2009 Client held shares of stock in a bank. The bank merged with another bank, and the client recieved both cash and stock in the new bank. I am not sure how to handle this. The terms of the merger call for each shareholder to recieve $2.50 in cash and .6 shares of stock in the merged bank. Any suggestions on how to handle this? If it was stock for stock, I think I would not report it and substitute basis. If it was cash for stock, I would have a sale and gain/loss. The 1099B shows it as a sale, but it is a very weird looking Substitute 1099B. Any help is appreciated. Tom Lodi, CA Quote Link to comment Share on other sites More sharing options...
Maribeth Posted March 31, 2009 Report Share Posted March 31, 2009 Tom, Without looking anything up, I believe you will have to allocate some of your basis to the cash you received. In other words, if the .6 share was worth $7.50 and the cash was $2.50, your client received $10 for each share he held in the old bank. Therefore 1/4th of the basis would be allocated to the cash and the remaining basis flows to the shares in the new bank. Maribeth Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted April 1, 2009 Author Report Share Posted April 1, 2009 That is along the lines of what I am thinking. What I did is take the difference between the number of shares he had and the new number of shares and said he sold them. Then I took the remainder and said he exchanged them share for share. I will put some numbers to it. Client holds 1575 shares with a basis of 10,000 or 6.34/share. He recieves cash of 3,933 and 1074 shares of stock in the merged bank. So he sold 511 shares with a basis of 3,260 for 3,933 with a gain of 673 and exchanged 1074 shares of old for shares of new with a basis of 6,760 Something is telling me this is not right. I can't put my finger on it though. Is it possible that he has to add the value of the new stock to the cash recieved as the sale of all 1575 shares, calculate the gain, and then act like he puchased back shares in the new company? Thanks again for your help. I just can't find anything that is on point in my research. Tom Lodi, CA Quote Link to comment Share on other sites More sharing options...
Daune/CA Posted April 1, 2009 Report Share Posted April 1, 2009 That is along the lines of what I am thinking. What I did is take the difference between the number of shares he had and the new number of shares and said he sold them. Then I took the remainder and said he exchanged them share for share. I will put some numbers to it. Client holds 1575 shares with a basis of 10,000 or 6.34/share. He recieves cash of 3,933 and 1074 shares of stock in the merged bank. So he sold 511 shares with a basis of 3,260 for 3,933 with a gain of 673 and exchanged 1074 shares of old for shares of new with a basis of 6,760 Something is telling me this is not right. I can't put my finger on it though. Is it possible that he has to add the value of the new stock to the cash recieved as the sale of all 1575 shares, calculate the gain, and then act like he puchased back shares in the new company? Thanks again for your help. I just can't find anything that is on point in my research. Tom Lodi, CA This is similar to a split. Zero basis in cash sale and zero basis in new shares being held. Old stock still retains original basis. Quote Link to comment Share on other sites More sharing options...
grandmabee Posted April 1, 2009 Report Share Posted April 1, 2009 a lot of the times if go to the website they have a worksheet for this transaction Quote Link to comment Share on other sites More sharing options...
Maribeth Posted April 1, 2009 Report Share Posted April 1, 2009 That is along the lines of what I am thinking. What I did is take the difference between the number of shares he had and the new number of shares and said he sold them. Then I took the remainder and said he exchanged them share for share. I will put some numbers to it. Client holds 1575 shares with a basis of 10,000 or 6.34/share. He recieves cash of 3,933 and 1074 shares of stock in the merged bank. So he sold 511 shares with a basis of 3,260 for 3,933 with a gain of 673 and exchanged 1074 shares of old for shares of new with a basis of 6,760 Something is telling me this is not right. I can't put my finger on it though. Is it possible that he has to add the value of the new stock to the cash recieved as the sale of all 1575 shares, calculate the gain, and then act like he puchased back shares in the new company? Thanks again for your help. I just can't find anything that is on point in my research. Tom, I don't think that is correct. Your client had 1575 shares of stock. He exchanged all of those shares for 3,933 in cash and property of 1074 shares in the new bank. Let's say that the FVM of the property he received is $10,000 (the new stock). Therefore, the total he received is 3933 plus 10000 or 13,933. He exchanges his 1575 shares for this 13,933. Then we have to allocate the basis among the cash and the new stock. Bais is 10,000. The basis in the cash is 3933/13933 * 10,000 or approximately $2822. The gain he will realize on the cash is 3933-2822 equals 1,111 capital gain. The remaining basis of 10,000 - 2822 or 7,178 is allocated now amount the new share s of 1074. There is no gain or loss recognized on this part of the transaction. Maribeth Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted April 1, 2009 Author Report Share Posted April 1, 2009 Maribeth, I think you are right. Thanks so much. Tom Lodi, CA Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted April 1, 2009 Report Share Posted April 1, 2009 The basic rule is that your economic gain (market value of new stock plus cash received less cost basis in your original shares) is only taxable to the extent of cash received . You can apply the formula: GAIN = Lesser of (CASH RECEIVED) or (Market value of NEW company's stock received plus CASH received less OLD company's cost basis) Heres a link to a useful calculator for calculating this sort of transaction. http://www.costbasis.com/stocks/cashtoboot.html Here's an even better discussion, with more examples: https://schwabpt.com/downloads/docs/pdflibrary/spt010960.pdf Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted April 1, 2009 Author Report Share Posted April 1, 2009 The basic rule is that your economic gain (market value of new stock plus cash received less cost basis in your original shares) is only taxable to the extent of cash received . You can apply the formula: GAIN = Lesser of (CASH RECEIVED) or (Market value of NEW company's stock received plus CASH received less OLD company's cost basis) Heres a link to a useful calculator for calculating this sort of transaction. http://www.costbasis.com/stocks/cashtoboot.html Here's an even better discussion, with more examples: https://schwabpt.com/downloads/docs/pdflibrary/spt010960.pdf What happens when it turns out to be a loss? Non-recognition of loss. I got it now. Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted April 1, 2009 Author Report Share Posted April 1, 2009 Thanks all. That is a cool website. Tom Lodi, CA Quote Link to comment Share on other sites More sharing options...
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