Taxpayer owns stock in a company and company merges with another company. Due to the merge, newly merged company gives taxpayer $20,000 (newly merged company's option; not a chose by taxpayer) and the balance in stock of newly merged company. Would the $20,000 that company paid taxpayer be considered a return of basis? If not, how should it be handled?
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What was their basis
In the stock given up? I would think they would have gain to the extent the cash and stock received exceeded the basis of the stock given up.In other words, a democratic government is the only one in which those who vote for a tax can escape the obligation to pay it.
Alexis de Tocqueville -
Cash distribution is probably taxable
Most of the similar cases I've dealt with result in most/all of the cash received being a taxable event, in most cases LTCG. Usually the limitation is the actual cost basis of the underlying (prior) security.
The company should be able to provide you with a worksheet or a copy of the prospectus that lists, at least in general terms, the potential tax effects.
And I'm not sure I know what you mean by "return of basis" ???
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