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We owned 200 shares of AIRTOUCH and receive shares of VOD and $9.00 cash a share or $1,800. We received a 1099B tax form for the $1,800.

Do we just pay tax on this cash or is there some cost basis to reduce this amount? Does the old cost basis for the AIRTOUCH/VOD shares remain unchanged.
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Yes, you pay tax on this cash (basically a premium in addition to the shares of Vod) at the appropriate tax rate (long or short term). You have to start with your cost basis in Airtouch (200 shares @ $z), then how many shares of Vod did you receive (y). $z x 200 -1800 = cost basis of y Vod.
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