You are not correct. This is a taxable transaction. Your cost basis in the Praxair shares is whatever your father-in-law paid for them. If the value of the Linde shares received ($163.45 per share) is greater than your cost basis, you have a capital gain equal to the difference between the value of the Linde shares received and your cost basis. Your new Linde cost basis is equal to the value of the Linde shares received. In other words, you have a recognized capital gain, but have a step-up in basis.
If your cost basis of the Praxair shares is greater than the value of the Linde shares received, you do not recognize a capital loss on the transaction. Instead, your new cost basis for the Linde shares is equal to the old cost basis for the Praxair shares. In other words, you don't have a step--down in basis.
