Cash in lieu of partial shares is a sale. The cost basis should have been pro-rated for the liquidated shares. How I do it won't affect the bottom line, but I want to get it right on general principle. The proper method is to reference the documentation your received in 2006. The documentation should specify how to divide the cost basis. As you stated since you sold both in the same year, how the allocation is done doesn't change your tax liability.
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