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Author: HarpFool One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121219  
Subject: Holding period Date: 1/15/1999 5:07 PM
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The tax Q&A article today touched an important question for me. What's your holding period if a stock you own gets swapped in a stock for stock merger, e.g. Amoco & BP? I gather it's the date you bought your Amoco stock.

Given that, what do you do if you bought stock on several occasions and it gets converted to fractional shares of the new stock? Say you bought 30 shares of AN a year ago and another 35 six months ago. This translates into about 43 shares of BPA. Do you say "I effectively bought 19 shares (really 19.85) of BPA over a year ago and another 24 (really 23.15) six months ago" for IRS purposes?

Seems like this makes it a bit more annoying to keep track of dividend reinvestment.

-- Tim
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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8456 of 121219
Subject: Re: Holding period Date: 1/15/1999 8:18 PM
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[[The tax Q&A article today touched an important question for me. What's your
holding period if a stock you own gets swapped in a stock for stock merger, e.g.
Amoco & BP? I gather it's the date you bought your Amoco stock.]]

I'm not familar with the specific Amoco and BP swap/merger, so I really can't respond to that. But if you originally bought Amoco, and that stock has been swaped or merged to BP, your holding period for BP would be the original holding period (or purchase date) for your original Amoco shares.

[[ Given that, what do you do if you bought stock on several occasions and it gets
converted to fractional shares of the new stock? Say you bought 30 shares of
AN a year ago and another 35 six months ago. This translates into about 43
shares of BPA. Do you say "I effectively bought 19 shares (really 19.85) of
BPA over a year ago and another 24 (really 23.15) six months ago" for IRS
purposes?]]

You have to treat the purchase dates as completely separate transactions. So it is possible that some of the fractional shares that you receive will be attributable to the AN that you bought over a year ago, and some is attributable to the shares that you bought only a few months ago.

The company should have provided you with a "formula" that you need to use in order to compute your new shares and the fractional shares that were sold. You basically have to apply that same formula to each and every purchase to determine your appropriate fractional shares sold, and the holding period applied to each.

[[ Seems like this makes it a bit more annoying to keep track of dividend
reinvestment.]]

You got that right, my friend. Many people would just "blow off" the fractional shares issue...simply reporting the entire "gain" on the fractional shares, and allocating the remaining basis over the other shares. That reduces your math problems.

It's not the correct thing to do, and I certainly can't recommend it. But it's a lot easier.

TMF Taxes
Roy

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