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Author: prime13 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 121585  
Subject: reorganization Date: 8/30/2001 4:17 PM
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A company that I own stock in, Cooper Industries, is considering a reorganization that will make shareholders responsible for capital gains tax for the increase in value of the stock when the reorganization takes place over their basis. Fortunately this reorganization has been put on hold for the time being and I hope it permanently rejected. I am a long time holder of the stock and so the gains I will be responsible for will be long term gains.

My question is: If I sell the stock this year, to pay for the taxes, after the reorganization takes place and I sell at a price above the reorganization price, will the gain I realize on this be long term or short term. As I understand it, when and if the reorganization takes place, my basis for Cooper will be increased from whatever it was in the 1970's when I inherited the stock to whatever it is worth now. Will my holding period be shortened long term [from in excess of 20 years] to short term?

Thanks,

prime13
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Author: WallyJr One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 53722 of 121585
Subject: Re: reorganization Date: 8/30/2001 8:22 PM
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A company that I own stock in, Cooper Industries, is considering a reorganization that will make shareholders responsible for capital gains tax for the increase in value of the stock when the reorganization takes place over their basis. Fortunately this reorganization has been put on hold for the time being and I hope it permanently rejected. I am a long time holder of the stock and so the gains I will be responsible for will be long term gains.

My question is: If I sell the stock this year, to pay for the taxes, after the reorganization takes place and I sell at a price above the reorganization price, will the gain I realize on this be long term or short term. As I understand it, when and if the reorganization takes place, my basis for Cooper will be increased from whatever it was in the 1970's when I inherited the stock to whatever it is worth now. Will my holding period be shortened long term [from in excess of 20 years] to short term?


From your discription here what happens.
1) on the completion of the reoganization, you recognize capital gain for the difference between the the FMV of the new stock you receive and your basis. For shares you have held over 1 year it will be long term gain, for shares held less than a year its short term.

2) your basis is the new shares is the old basis plus the gain you recognized in 1) above

3) your holding period starts over (so if you sell in less then a year from the reorganization you'll have short term gain or loss, remember your basis is in effect the FMV on the date of the reorg)


You should get a flyer from the company with a worksheet explaining exactly what happened and how to compute your gain and new basis.

Do you really expect the stock the stock to do that well after the reorganization?

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