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BTI just bought RAI for $29.44 cash and .526 shares per 1 share of RAI. How do I enter this in QWIN

Tom Nale

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NotACPA

Record the $29.44/sh of RAI as an RAI dividend. Then record a Corporate Acquisition of RAI by BTI as .526 shares

Tom Young

For taxes this is a sale of RAI to BTI for cash plus stock so first record a Sold action, for cash, in the amount of ($29.44 + .526 x $69.25*) x # of shares of RAI tendered. Then on the same day record a Buy of (.526 x # if shares of RAI tendered) shares of BTI at a price of $69.25* per share.

If you end up with fractional shares of BTI you will subsequently sell that fraction for the amount of cash in lieu reported by your broker.

* figure recommended by BTI at http://s2.q4cdn.com/129460998/files/doc_downloads/FINAL-RAI-ACQUISITION-INVESTOR-FAQ.pdf You can come up with another, supportable, number if you wish.

q_lurker

Expanding on Tom Young's answer, one of the FAQs in his link was

That is the consideration that makes this transactions a sale of the RAI shares (with consequent capital gain considerations) and a new purchase of the BAT ADS shares (ticker BTI) thereby starting a new holding (new cost basis, new acquisition date).

Russ Donovan

Do I then add a $20 MiscExp for the ReorgFee? Against RAI or BTI or "no security?

q_lurker

@Russ Donovan:
a) Talk to your tax adviser ('cuz I ain't one)
b) I'd probably apply it against the BTI security, but I suspect it might be a direct investment expense, rather than a cost basis adjustment, such that what security you apply it to would not matter. See a).

Tom Nale

I put down the $29.44 as a dividend and entered the conversion as a corporate acquisition at the rate of .526 to 1 and it came out with the same numbers that Etrade is showing on my account. Etrade initially charged $38 for the transaction and has since entered a credit for that amount.
Thanks for taking the time to answer this question!

unknown

The $29.44 is not a dividend but is part of the sale price. For tax purposes this may be important.

q_lurker

and point 2 for that being the wrong approach ...

The Corporate Acquisition route is going to convert your RAI basis to be the new basis for the BTI shares. Wrong. The BTI basis should be the $69.25/share identified in Tom Young's post (or a similar justifiable value). That applies whether eTrade shows it that way immediately or not. (Brokerages have been known to take the quick approach first and then later silently make corrections.)

All depends on whether the Quicken user wants a tax-accurate financial picture. Some do. Some don't care.

Tom Nale

and my account is an IRA so I do not care about tax accuracy.

unknown

The cash is return of capital to RAI shareholders. It is not taxable.

Tom Young

The company disagrees with you

http://s2.q4cdn.com/129460998/files/doc_downloads/FINAL-RAI-ACQUISITION-INVESTOR-FAQ.pdf

unless what you are saying is that "the cash can be counted as a return of capital against the basis of RAI, then report the the sale of the (lower basis) RAI for the cash value of the BTI received, then use that cash to buy BTI."

unknown

Yes, the cash portion is a taxable event for RAI holders. I am not sure as to how much of the cash distribution is taxable.

unknown

According to Vanguard, the entire value (BTI Stock + Cash - Original Basis) is taxable as Cap Gain.

q_lurker

@martin.peter.b. The tax consequence is the capital gains associated with the effective sale of the RAI shares. You "sold" the RAI shares for $69.87 per share using above values and had some basis in those shares. That gain, if any, is taxable at applicable capital gain rates. That taxable amount may be more or less than the $29.44 per share.

Tom Young

@Chas Modee

The entire value of what what received - cash plus stock - is not capital gains, it's the PROCEEDS of a sale. When you subtract your basis in RAI THEN you have capital gains, or loss.

unknown

the stock portion of RAI was exchanged for stock of BTI. there was no realization of value for that part of the transaction, "no cash in hand". Tax should only be paid on that portion where value was realized, "cash in hand". If the stock for stock portion is considered taxable, that means the owner of RAI was forced to involuntarily purchase BTI stock which is still exposed to the risk of the market!

q_lurker

@Betty Leach: as pointed out to others, the companies disagree with you. They cite this a a taxable transaction. It does not matter if some of the value received was in another company's stock.

Yep. That is pretty much what happens in takeovers. Of course they also have the ability to sell it off immediately at no (practical) gain/loss or risk.

As always, no one here is claiming to offer tax advice or consultation. Do your own due diligence and consult qualified, competent advisers.