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Financial Planning / Tax Strategies


Subject:  Re: Tax implication on GDT & JNJ deal Date:  4/5/2005  11:39 PM
Author:  irasmilo Number:  78324 of 123001

Each merger stands on its own and has its own rules. What follows is a general rule that often holds in cash + stock mergers.

First you have to determine the total value received for your GDT shares. This will be the sum of the cash received and the value of the JNJ shares. Compare this amount to your cost basis in GDT to determine whether you have a gain or loss.

Since you know you're getting $76 in value for each of your GDT shares and you're stating that your cost basis is $50/share, you have a gain of $26/share.

You will report the lesser of the calculated gain ($26) or the cash received ($30.40) as a taxable gain on the transaction. In this case, you would report $26/share as gain. What about the other $4.40 cash you received? This is a return of capital which reduces your basis in the GDT shares to $45.60.

Now you make the exchange in which you get x shares of JNJ for each share of GDT. Your cost basis per share of JNJ is $45.60/x.

Finally, since you will probably receive a non-integral number of shares of JNJ, you will probably sell the fractional shares of JNJ for some (to be determined) amount. This will also be a reportable capital gain/loss transaction.

Here are the other scenarios:

If your GDT basis were $40/share, you would have a gain of $36/share and would be receiving $30.40/share in cash. The lesser of the cash received or gain (cash in this case) is reported as a capital gain. Your entire cost basis of GDT ($40/share) is transferred to the fractional share of JNJ yo