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Author: windnwave One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121219  
Subject: Cash/Stock Merger tax treatment Date: 2/15/2009 2:53 PM
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Hoping someone can shed some light on this for me. I held 3000 shares of AFR in a taxable account. AFR merged with GKK. AFR shareholders receive $5.50/shr in cash plus a special div of $0.2419/shr cash plus .12096 shares of GKK per share of AFR.

On 4/2/08 (merger complete 4/1/08), I received $17225.70 cash and 362 shares of GKK in my account and the AFR shares disappeared as expected. The cash was the $5.7419*3000 shrs.

My broker sends me an end of year gain/loss report. It shows total proceeds from this transaction of $25004.58. This would include the $17225.70 cash and appear to value each shr of GKK at about 21.49/share. It traded in that range in April '08.

This week I got my 1099-B. For AFR, it shows a sale date of 4/2/08, 3000 shares, Gross Proceeds $17225.70.

My questions are:
How do I calculate my loss on the sale of the AFR shares? Assuming I paid about $30k for these shares, do I use the $17225.70 firgure reported on my 1099-B?

If so, that would appear to suggest my cost basis in the shares of GKK received must be zero. Does that sound correct?

Why would my broker report total proceeds of $25004.58 on a year-end gain/loss report but only $17225.70 on my 1099-B?

Thanks,

Tom
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Author: Crosenfield Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 104500 of 121219
Subject: Re: Cash/Stock Merger tax treatment Date: 2/15/2009 4:00 PM
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"Why would my broker report total proceeds of $25004.58 on a year-end gain/loss report but only $17225.70 on my 1099-B?"

$17225.70 is what you received. You also got stock worth $7778.88, but buying a stock is not a taxable event.

When there is a merger or acquisition, the accounting can get really messy, and no two cases are the same. You should have received some documents from your broker at the time of the merger. If you can't find that sheet of paper, or don't know how to report on your taxes, call the company and ask for an explanation.

My guess is that you now have a basis of $7778.88 in GKK and a loss of what you paid for the original AFB minus $25004.58, but do check with the company.

Best wishes, Chris

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 104505 of 121219
Subject: Re: Cash/Stock Merger tax treatment Date: 2/15/2009 7:30 PM
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How do I calculate my loss on the sale of the AFR shares?

The companies involved are the only ones who know for sure. They will have something available on their web site or from investor relations to explain how the transaction is to be reported by shareholders. There are an almost infinite number of ways the transaction can be structured. Two of the more common ways are to have the transaction fully taxable or to have the transaction significantly tax-free.

If so, that would appear to suggest my cost basis in the shares of GKK received must be zero. Does that sound correct?

Nope. Odds are that you will either carry over part of your basis from the old stock or that you will get a new cost basis of roughly the FMV on the date of the transaction.

Why would my broker report total proceeds of $25004.58 on a year-end gain/loss report but only $17225.70 on my 1099-B?

The person you deal with probably thinks in terms of investment returns. You bought the stock for some sum of money, and eventually got some cash and another stock with a FMV of $xxx. So he calculates up an investment result from that. But that is not necessarily the correct tax treatment. The brokerage company is a bit more in tune with the tax treatments. They simply reported the cash you received as the sale proceeds. It's possible (even likely) that neither is correct for tax purposes.

--Peter

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Author: windnwave One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 104515 of 121219
Subject: Re: Cash/Stock Merger tax treatment Date: 2/15/2009 11:37 PM
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Thanks for your thoughts Chris and Peter.

I have checked Gramercy's web site but no luck there. My broker didn't send anything other than the 1099-B. I've emailed investor relations so hopefully they can shed some light on this for me. It was a fully taxable event as I understand it - just need to figure out how to report it properly.

Tom

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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 104521 of 121219
Subject: Re: Cash/Stock Merger tax treatment Date: 2/16/2009 7:52 AM
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Hoping someone can shed some light on this for me. I held 3000 shares of AFR in a taxable account. AFR merged with GKK. AFR shareholders receive $5.50/shr in cash plus a special div of $0.2419/shr cash plus .12096 shares of GKK per share of AFR.

On 4/2/08 (merger complete 4/1/08), I received $17225.70 cash and 362 shares of GKK in my account and the AFR shares disappeared as expected. The cash was the $5.7419*3000 shrs.

My broker sends me an end of year gain/loss report. It shows total proceeds from this transaction of $25004.58. This would include the $17225.70 cash and appear to value each shr of GKK at about 21.49/share. It traded in that range in April '08.

This week I got my 1099-B. For AFR, it shows a sale date of 4/2/08, 3000 shares, Gross Proceeds $17225.70.

My questions are:
How do I calculate my loss on the sale of the AFR shares? Assuming I paid about $30k for these shares, do I use the $17225.70 firgure reported on my 1099-B?

If so, that would appear to suggest my cost basis in the shares of GKK received must be zero. Does that sound correct?

Why would my broker report total proceeds of $25004.58 on a year-end gain/loss report but only $17225.70 on my 1099-B?


Because they made a mistake. According to the prospectus for the merger, the transaction was fully taxable to holders of AFR stock. Capital gain (or loss) is the difference between the sum of cash and GKK stock received and the adjusted cost basis in AFR stock. Full details can be found on page 100 of the prospectus: http://files.shareholder.com/downloads/GKK/553384991x0xS1047...

Ira

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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 104525 of 121219
Subject: Re: Cash/Stock Merger tax treatment Date: 2/16/2009 8:08 AM
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How do I calculate my loss on the sale of the AFR shares? Assuming I paid about $30k for these shares, do I use the $17225.70 firgure reported on my 1099-B?

Don't be so certain that you have a loss. Your cost basis isn't $30,000. Since these are REITs, part of the "dividend" distribution you received each year was probably a return of capital. You have to subtract all of these amounts from your original cost basis to determine your adjusted cost basis.

Ira

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Author: windnwave One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 104553 of 121219
Subject: Re: Cash/Stock Merger tax treatment Date: 2/16/2009 9:16 PM
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Ira:

Thank you very much for your reply, and particularly for the link to the prospectus. I have tracked the ROC payments over the year (AFR paid most of their dividends as ROC) so I can correctly figure my adjusted cost basis. Believe me, I still have a loss.

I suppose I need to call my broker since the 1099-B appears to incorrectly report the proceeds from this transaction. If I report it correctly on my tax return, wouldn't the mismatch between the 1099-B that the IRS received and my tax return be a problem?

Tom

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 104554 of 121219
Subject: Re: Cash/Stock Merger tax treatment Date: 2/16/2009 9:18 PM
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If I report it correctly on my tax return, wouldn't the mismatch between the 1099-B that the IRS received and my tax return be a problem?

It's only a issue if you report less than the 1099-B. Since you need to report more than what was on the 1099-B, you'll be fine.

--Peter

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