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
