Return on Capital

[whkrueg]

Hello All,

I am working on a 2007 tax return for a client. The client has a 1099-b that show proceeds of $10K in box 2. However on a distribution summary from the broker is shows that YTD distribution of $25K. The YTD Distribution is broken down to $15K in qtrly distribution and $10K in Return on Capital. The exact amount shown in the 1099-b box 2.

It seem the company the shares were in merged another company and the stock holders were given a cash distribution plus shares in the new company. In this case $10K in cash and $15K in stock.

What is the best way to figure the cost basis on this stock? Do I figure it on the whole $25K or just the $10K shown on the 1099-B.

I should also mention this stock was inherited.

Thanks for your assistance....
Wayne

[erchess]

I am not sure

but I think his basis in the new shares is equal to the 10K Boot plus FMV on decedent's date of death or alternate valuation date chosen by whomever settled the estate. I am also fairly certain that the 10K Boot is taxable income for 2007 but I think it counts as capital gain income. Please note that I am not sure of any of this and I don't even know what to look for in the TTB Index to quickly find the answer.

[Burke]

Almost always in these mergers and acquisitions, spin-offs, etc., the company notifies each shareholder of how the tax implications work and how to compute adjusted basis in the old shares and the new shares. If the TP does not have this written material (furnished when the merger/acquisition took place) you can always access on the company's website under Investor Relations. The $10,000 is taxable gross proceeds and you must compute basis in the new shares received. Basis of old stock (if inherited) is FMV per share on DOD, adjusted for any splits, and/or increased by any dividend reinvestment or addl purchases. You can look up the info on the Internet IF the old stock still exists. Some of this basis will be allocated to the $10,000 proceeds and the balance will carry over to the new shares. If it is a true merger where the old stock is surrendered for the new, and there is no old stock to retain, you should be able to allocate basis 40%-60% based on the figures in your post. Whether you want to allocate basis to the reportable gross proceeds in 2007, depends on the individual's own tax situation. Otherwise, carry over all basis to the new shares and report $10,000 in full as long-term cap gain.

[whkrueg]

Return on Capital

Burke,

There is no stock left of the old company. The client really has been good at record keeping. It has been a difficult process for me to get the info I've gotten. The client's father passed away in 2006 and the merger was in 2007. Hopefully I can get the FMV of the shares on his day of his death without a lot of trouble. I will check the company web site and see what info I can find and alocate the basis.

Thanks for the help

Wayne

[Burke]

If the old stock is no longer traded, you won't be able to get the FMV at DOD from the usual stock valuation sites on the Internet. You might get it from the inventory filed with the probate court when the father died. (He probably did not file an Estate Tax Return.) Or it might be on old statements that may or may not be with the father's old tax returns. If you have a relationship with a stockbroker, their research depts also might have access to such info. Some persons on this board or others might be able to tell you from their records, if you could provide the name of the old and new stock.

[Nashville]

Add the $10,000

I haven't seen anywhere in the responses where you should add $10000 to the basis of the new stock because you were taxed on the transaction for this amount. But you should do this as a part of the recalculation.