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We bought 500 shares of a company stock last December for about \$6/share. The company was bought by another company in June and we received \$7 cash + .55 shares of the new company for each share of the old company (=\$3500 and 275 shares). We are still holding the 275 shares of the new company. Any ideas on how to calculate the cost basis for the \$3500 cash that we receive? Do we use the 500 *\$6 = \$3000 for the basis and then the proceeds are \$3500 now and then a \$0 cost basis when we sell the 275 shares of the new company? Or would the original \$3000 cost basis be split between the cash payout and the new shares? Does anyone know where I should look to get this info?
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The basis should probably be split between the cash and the new stock received. Typically, this information will be posted on the web site of the company, probably in a FAQ under "investor relations", "information for shareholders", or some such thing. I would also think you almost certainly would have received something at the time that all this happened, explaining how to allocate basis.
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You will have to determine if the buy out by another company was a taxable transaction. I suspect that it was. In that case, you would have to declare a gain on the disposal of your old stock. In computing this gain, you would figure the sales amount as the sum of the cash received plus the fair market value of the stock received.

In that case the cost basis for the new stock would be the fair market value used in the above.

You should be able to get the correct information from either the old company or the new company.

Rip
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I'm back to ask for more assistance. I contacted the new company who sent me to the transfering agent (Wells Fargo) who claimed they didn't know anything about the tax implications. They sent me back to the company who said they didn't have the info and told me to call the IRS. I've not had much luck with getting useful info from the IRS in the past. Any suggestions? The companies involved are Oshman's Sporting Goods and Gart Sports. Oshman's was bought by Gart last June. We received \$7 and .55 Gart shares for each Oshman's share. Our original purchase price for the Oshman's stock was \$6/share last December. Can anyone help?

Thank you.
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I contacted the new company who sent me to the transfering agent (Wells Fargo) who claimed they didn't know anything about the tax implications. They sent me back to the company who said they didn't have the info and told me to call the IRS.

That is completely and utterly ridiculous. The companies in question obtained an opinion on the taxability of the transaction, and they should provide you with the information that you need. The idea of sending you to the IRS blows my mind.

For what it's worth, I took a look at the sec filings on the transaction. There, it said that OSH stockholders would recognize gain to the extent of the lessor of the following:
Fair market value of Gart stock receive plus cash less basis in OSH
or

I wouldn't rely on the above for filing your tax return. Keep after the Investment Relations department of the companies involved.

Good Luck,

Rip
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Boy, their web site is lousy for investors. I found this press release on the purchase of Oshman's. At the bottom are some contacts. Maybe they can help. http://www.gartsports.com/corp/index.jsp?page=pressrelease&eid=4269

--Peter
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I read the same press release and contacted one of the individuals listed on it via email. They responded that they were the first line of contact, but when I posed the question to the individual (surprise!surprise!) they don't answer back. This is all very frustrating. In retrospect, I should have just sold the Gart stock before the end of the year which would have kept the whole deal in one calendar year.

Janice
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You wrote --

"For what it's worth, I took a look at the sec filings on the transaction. There, it said that OSH stockholders would recognize gain to the extent of the lessor of the following:
Fair market value of Gart stock receive plus cash less basis in OSH
or

Where did you find the above info? I want to read the filing and if necessary print it out to keep with my records. I'll keep pursueing Investor Relations, but if push comes to shove and April 15th arrives without any kind of answer, then I'll have some basis for whatever decision I make. I'm finding this all very frustrating.

Thank you very much for the help.

Janice

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Janice,

The SEC document [very lengthy] is at

http://www.edgar-online.com/bin/edgardoc/finSys_main.asp?dcn=0000927356-01-500076

The pertinent portion for you says....
<<
United States Federal Income Tax Consequences of the Merger (See page 45)

It is a condition to the completion of the merger that both Gart and Oshman's receive opinions from their respective accounting firms to the effect that the merger will be treated as a reorganization described in Section 368(a) of the Internal Revenue Code.

If the merger is treated as a reorganization under the Internal Revenue Code, in general, for federal income tax purposes:

. no gain or loss will be recognized by the holders of Gart common stock; and

. a gain, if any, but not a loss, will be recognized by the holders of Oshman's common stock to the extent of the lesser of (1) the fair market value of Gart common stock, plus the amount of cash received, less such stockholder's tax basis in the Oshman's common stock surrendered and (2) the amount of cash received. Such gain ordinarily will be a capital gain.
>>

Rip
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Technically it sounds to me that you received a cash and stock dividend payout. This means that the cash dividend (3500) is currently taxableas ordinary income with no reduction to or for basis.

The basis of the stock dividend is determined by re-allocating you original basis proportionally over the shares. Proportionally is determined by the FMV on the date the dividend was distributed. The holding period for all of the shares dates back to your original purchase.

Hope this helps!

Stephanie
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I am sorry -- I misread your post. I did not read at first that you had the new shares in place of the old shares.
No. of Recommendations: 1
Technically it sounds to me that you received a cash and stock dividend payout. This means that the cash dividend (3500) is currently taxableas ordinary income with no reduction to or for basis.

The basis of the stock dividend is determined by re-allocating you original basis proportionally over the shares. Proportionally is determined by the FMV on the date the dividend was distributed. The holding period for all of the shares dates back to your original purchase.

I'm sorry, but this just isn't right. The cash received is not a dividend and the tax consequences of the cash received can only be determined by referring to the documentation provided by the companies involved. There are many different ways to structure a buyout with equally many ways to determine the tax liability. Legal counsel for the companies will have worked out the specifics with the IRS before the merger was approved.

Ira