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Author: lorenzo2 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121594  
Subject: Re: 1099-B Date: 2/21/2002 5:32 PM
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KB is saying that he started, some 28 years ago, with 10 shares of Texaco. I imagine that he might have reinvested dividends over the years, and there was a 2:1 stock split in 1997. In any case, he had some number X of shares of Texaco in October of last year, when TX and CHV merged to form CVX. In the merger, each CHV share was traded for one CVX share, and one TX share became 0.77 shares of CVX. So - as a result of the merger, KB then owned X*0.77 shares of CVX. They don't issue fractional shares in things like this, so KB received a cash-in-lieu payment for whatever fractional share he had, and presumably received a certificate or a book-entry for his whole shares.

From a tax standpoint, the cash-in-lieu payment is a capital gain (probably), coming from the sale of that fractional share of stock. As such, it's reported on Schedule D. As KB notes, the trick is to find the basis. Bob is right - the basis of the original 28 shares, from which the current shares derive, is the basis of the person who gave him the stock to begin with. So the easiest thing to do is to ask Dad, Grandpa, or whoever it was, for the basis information. If he doesn't know, it's remotely possible that the broker from whom he bought it could dig it out. Failing that, probably the best you could do would be to try to deduce when the stock was purchased, then dig out historical prices. Take an average of high and low, or to be really safe, take the low. And, of course, the IRS would be happy to have you just claim zero basis... In any case, once you have a basis number for the original few shares of stock, you need to then figure out what portion of that original chunk was sold last fall.

All this stuff is pretty easy if you have accurate records. It's devilishly difficult if you don't have records, especially if it goes back years through numerous splits, merges, and spinoffs. Imagine the nightmare if you had 100 shares of AT&T dating from the mid 50s, for example.

Good luck.

Lorenzo
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