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How to enter an exchange of shares between companies

Meebs

I had 100 shares of company "A" at a cost of $944. Company "A" was taken over by Company "B" and there was an exchange of stock. I received 32 shares of Company B totaling $1074. How to enter this exchange in Q2019 as there is no action for "exchange"?? Tx

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Tom Young

Here's the tax guidance for this deal:

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U.S. Federal Income Tax Consequences of the Arrangement to U.S. Holders

Exchange of Goldcorp Shares for the Consideration

A U.S. Holder’s exchange of Goldcorp Shares for the Consideration pursuant to the Arrangement (the “Goldcorp Share Exchange”) will be a taxable transaction for U.S. federal income tax purposes and will generally result in the following U.S. federal income tax consequences:

>a U.S. Holder of Goldcorp Shares will recognize gain or loss equal to the difference between (i) the sum of the fair market value of Newmont Shares and the U.S. dollar amount of the cash received by such U.S. Holder in the Arrangement, and (ii) the adjusted tax basis of such U.S. Holder in such Goldcorp Shares exchanged;

>the aggregate tax basis of Newmont Shares received by a U.S. Holder of Goldcorp Shares in the Arrangement will be equal to the aggregate fair market value of Newmont Shares as of the Effective Date; and

> the holding period of Newmont Shares received by a U.S. Holder in the Arrangement will begin on the day after the Effective Date.

Gain or loss must be calculated separately for each block of Goldcorp Shares exchanged by a U.S. Holder if such blocks were acquired at different times or different prices. Any gain or loss recognized by a U.S. Holder as a result of the Goldcorp Share Exchange generally will be capital gain or loss and will be long-term capital gain or loss if such Goldcorp Shares have been held for more than one year. Preferential tax rates for long-term capital gains are generally applicable to a U.S. Holder that is an individual, estate or trust.

q_lurker

@Tom Young's post confirmed @NotACPA's post. This is a sell and buy situation. Using your numbers

Your new NEM shares were valued at $33.545/share (1073.44 / 32)

You were entitled to 32.80 NEM shares plus $0.02 for each of your 100 GG shares
32.80 sh * $33.545/sh + 100 sh * $0.02/sh = $1102.28

So you sold the 100 GG Shares for $1102.28 -- there was no dividend. $1102.28 cash to your account.

You bought 32 shares of NEM at $33.545 / sh = $1073.44 out of your account. They did not distribute (you did not buy) the fractional share.

Net 28.84 cash to your account.

All comments

NotACPA

Try "Corporate Acquisition (stock for stock)" Company B acquired your 100 shs of Company A for 32 shs of B.

Where did the $1074 come into play? Is that the new value (NOT Cost Basis) of the shares? Because your Cost Basis is still $944

Tom Young

An "exchange of shares" is more or less a meaningless description of a transaction. While it's probably most common that transactions of this sort are not taxable events and result in nothing more than your old basis carrying over to the new shares, these events can also be fully taxable and properly reported as a sale with a resulting gain or loss. You have to understand exactly how the deal was structured in order to make a proper accounting of the transaction.

So "company A", "company B" questions simply can't be answered conclusively. What are the names of the companies involved?

Meebs

Thank you for your response. I tried a simple question but since you asked for details, here they are: (-_-)

A= Goldcorp Inc (GG)

B=Newmont GoldCorp Corp (NEM)

From my brokers statement:

4/19 GG Exchange -100 2.00

4/19 Newmont GoldCorp Corp Exchange 32.00

From the Realized Gain/Loss statement

GG Qty 100, Acq Cost $944, Liquidation Amt $1102.28 STG= $158.20

From my current account's

NEM 32, Unit cost 33.55, Cost basis 1073.44

From Newmont Website information

Newmont will pay 0.3280 of its own shares for each Goldcorp share, a premium of 17 percent to the weighted average share price from the last 20 days. Newmont also plans to pay 2 cents for each Goldcorp share.

The 0.02 cents/share was a deposit of $2.00 which I classified as Dividend??

I do a daily D/L in Quicken from this broker, It was a a variation of the data presented above and that is when I tried to understand it and therefore the question. Looking forward to 2019 tax return and how this will be entered. Appreciate your time. Tx Mike

NotACPA

What this "GG Qty 100, Acq Cost $944, Liquidation Amt $1102.28 STG= $158.20" seems to be saying is that this is NOT a tax-free action.

SO, sell 100 shs of GG and BUY 32 shs of Newmont.

And, yes, there's also a $2 dividend.

Tom Young

Here's the tax guidance for this deal:

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U.S. Federal Income Tax Consequences of the Arrangement to U.S. Holders

Exchange of Goldcorp Shares for the Consideration

> the holding period of Newmont Shares received by a U.S. Holder in the Arrangement will begin on the day after the Effective Date.

q_lurker

Meebs

Gentlemen, thank you very much for helping me to understand this transaction. Will be copying these responses and storing them in my 2019 tax folder. (-_-) Mike