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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: of 121219  
Subject: Re: COMS and USRX Date: 7/22/1997 11:44 AM
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<<I can't seem to find this subject on the 3COM or the USRX board. I'm trying to enter the merger properly in Quicken.
1- Does it matter what price USRX was at when the actual merger occured? What was it? When did it actually occur- 6/12 closing price or 6/13?
2- Is the merger considered a sale of USRX and thus taxable?
3- For the purpose of capital gains, is the purchase date of the new shares of COMS considered to be the date I originally bought the USRX shares or the date of the merger of the shares. That is, if I were to sell that lot now (I won't), would it be short term or long term gain? When will it become long term?
4- For the purpose of tracking how well my investments have been doing over the past year, will Quicken calculate the COMS tax lot of new shares that came from USRX as having been in the pool since the USRX shares were originally purchased or will that data be lost and Quicken will consider the shares to have been created at the time of the merger?

I like this merger, but all of these spin offs (ATT to NCR and LU) and mergers are a hassle, I thought buy and hold was supposed to be simpler. All well, enough whining.>>

Thanks for the questions, Bruce. I'll try to answer what I can, but some of it is out of my range.

As far as the tax basis of your new shares, only the COMPANY (probably COMS) can provide you with the EXACT formula that must be used in order to spread your basis in your old USRX shares to your new COMS shares. As I recall (I'm not a COMS or USRX holder...sorry...so I have to go from memory)it was a stock swap of COMS shares for USRX shares. And it was a tax free swap, as I recall.

For example, lets say that you had 100 shares of USRX, for a total tax basis (including costs and commissions)in the amount of $5,000. And lets say that you received 70 shares of COMS in exchange for your USRX shares. Your basis for the 70 new shares would still be $5k, or $71.42857 per share.

Because of the fractional shares involved, you will probably be deemed to have sold some of your prior USRX shares, and will have a small sale transaction to report on your Schedule D for 1996. COMS should be providing you with a statement that will allow you to make this computation, but in the meantime, lets look at this example.

Using the same information above, lets say that your 100 shares of USRX provides you with 69.36 shares of COMS. Well, COMS is not going to issue "fractional shares", so they will instead give you 69 shares and some cash. For purposes of this example, lets assume that the .36 shares really represents $30 in value (based upon the check you receive when the deal is finally done). Now then, since you have a stock "sale" for $30, how do you figure you TAX BASIS in these shares? THAT is the information and formula that you should receive from COMS. You can get "close" to this amount by doing some simple computations, but you can't hit this number "right on the nose" until you receive the information from the company.

So, if I understand the transaction correctly, MOST of what you receive in COMS stock will be non-taxable. BUT, as noted above, a small portion of what you receive (cash, in the form of payment for fractional shares) will be a reportable transaction on which you may realize a gain or loss.

As far as the holding period, your holding period of the new COMS stock will "tack on" to your original purchase of the USRX stock. For example, lets say that you bought your USRX 14 months ago. On the day after you receive your new COMS stock, you sell 'em. While you have only held the new stock for a day, you still get to treat the sale as if you held it for 14 months. So, for this example, because your holding period was more than one year, you'll get long term treatment on gain or loss generated.

Finally, as far as the Quicken issue, you'll have to manually go in and "trick" Quicken into what you currently own (COMS), the correct basis for the COMS stock (based upon the information you receive from the company), and the gain or loss on the sale of the fractional shares. I don't believe that Quicken has a "split off/spin off/merger" model in the system that will easily do this for you.

Hope this helps. I'll do some snoopin' around and see if the formula for the COMS/USRX transaction has been posted somewhere. And I'll also take some time to review the transaction to see if my memory had failed me.

TMF Taxes
Roy Lewis
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