Question about the tax return 2017

[ghwong123]

I reported the tax return 2017 regarding the merger of REYNOLDS AMERICAN INC BY BRITISH AMERICAN TOBACCO(BTI) on 7/25/2017. I did not sell either stocks or report its capital gain.

But IRS reported all my REYNOLDS AMERICAN INC were either sold or disposed and tried to charge me extra tax of $19,415.

Can somebody suggest anything I can do?

Any CPA can help?

Please contact Stella Hwong at [phone number removed] or [phone number removed]

or [email address removed]

[Critter · Accepted solution]

Posting PII on a public web forum is unwise ... it was removed for your safety.  

Now ... you did have a reportable sale that should have been on your 1099-B from your broker ... the IRS got a copy of it ... so you will need to respond back with the basis figures so all the sale is not taxed.  Seek local professional assistance if needed to refute the IRS assumptions.  

As a RAI shareholder, what will I receive as a result of the acquisition?
For every RAI share, holders will receive $29.44 in cash, without interest, plus a number of BAT
American Depository Shares (BAT ADSs) which represents 0.5260 of a BAT ordinary share. Pursuant to
the merger agreement, any resulting fractional BAT ADSs will also be sold at then-prevailing market
prices and holders will receive their pro rata share of the net proceeds.

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

[Anonymous · Accepted solution]

sorry, but the exchange was fully taxable and should have been reported on your 2017 tax return.   as part of the transaction you should have gotten a synopsis of the tax consequences.  

The capital gain is equal to the total proceeds, less the cost basis which is the price paid for the RAI stock. In this transaction the total proceeds are equal to the cash received plus the fair market value of the BAT stock received.

Each RAI shareholder received $29.44 of cash and 0.526 of a BAT share per one share of RAI exchanged. The per share value of the BAT stock received is $69.25 - the closing price of the stock immediately prior to the merger effective date.

cash $29.44 + $36. 2555  (FMV of BAT .526 X 69.25) = $65.8655   X numbet of RAI shares you owned = proceeds less cost of RAI shares = capital gain

don't know if IRS took into account your cost basis but you definitely had a taxable event.   

i would suggest accessing your 2017 return to amend it to reflect proceeds and cost and see of the amount owed (after taking into account any refund received or balance paid).   The IRS amount will include the taxes penalties and interest.  the notice should break this down. if your computation of amount owed is the same as the IRS amount for additional taxes,  then either pay the bill or consult a CPA to review your situation (maybe they can come up with something and request abatement or reduction of the penalties).   

don't ignore the notice.  there is a time limit for responding after which you ability to contest it will be gone.

I am surprised at one thing.  that the brokerage where you held the RAI did not report the exchange on form 1099-B.  Or did it and you just ignored it?  Most likely it was there and you ignored it because the IRS got the  info from that brokerage