Entering a company action involving stocks and cash

InvSimply

Recently TransAlta Renewables (RNW) and Trans Alta (TA) entered into an arrangement to combine the two companies. Under the arrangement, TA acquired all the outstanding shares of RNW. I received a combination of TA shares and a cash disbursement into my investment account. Not having encountered this before, in Quicken I manually entered two transactions, the one as a sale of the RNW for the cash amount. For the TA shares, I used the Add Share dialog so as not to affect the reconciliation of the cash accounting. From a Capital Gains/Loss perspective, this doesn't seem right, although the TA shares are showing a Capital Gain because the Cost Basis is set at 0.00.

Is there a better way to do this? I did try the Corporate Securities Spin Off dialog, but it produced four transactions that did not seem to make sense.

Tom Young

You presumably received the "Special Meeting of Shareholders" mailed out by the company so you might want to dig that out to read the larger discussion of income tax consequences to shareholders.

( https://transaltarenewables.com/wp-content/uploads/sites/2/2023/08/TransAlta-Renewables-Transaction-Management-Information-Circular.pdf

Briefly (assuming US citizenship):

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General Tax Considerations Relating to the Arrangement

The Arrangement is expected to be a taxable event for U.S. federal income tax purposes. Accordingly, subject to the PFIC rules discussed below, the following U.S. federal income tax considerations generally will apply to U.S. Holders:

(a) gain or loss would be recognized in an amount equal to the excess of the fair market value of
the TransAlta Shares and/or the U.S. dollar value of the Canadian currency received pursuant
to the Arrangement over the U.S. Holder's adjusted tax basis in the Renewables Shares
surrendered;

(b) the aggregate tax basis of the TransAlta Shares received in the Arrangement would be equal
to the fair market value of such shares on the date of receipt; and

(c) the holding period for the TransAlta Shares received in the Arrangement would begin on the
day after such shares are received.

Subject to the PFIC rules discussed below, any gain or loss described in the first bullet point immediately above would be capital gain or loss, which would be a long-term capital gain or loss if the U.S. Holder's holding period in the Renewables Shares exceeds one year as of the date of the Arrangement. Such gain or loss generally will be considered U.S. source gain or loss for U.S. foreign tax credit purposes. Non- corporate U.S. Holders (including individuals) generally will be subject to U.S. federal income tax on long- term capital gain at preferential rates. The deductibility of capital losses is subject to complex limitations under the Code.

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So the approach to take here is determine the fair market value of the stock received and add that amount to the cash received. This number is the name that you'll use to sell your current holdings, creating a gain or loss. Then use that "cash" to buy the new security.