NOTE: THE TAX ADVICE GIVEN HERE DEALS WITH THIS SPECIFIC TRANSACTION AND CANNOT GENERALLY BE APPLIED TO OTHER "CASH + STOCK" DEALS. ANY GIVEN DEAL CAN AND USUALLY DOES HAVE INCOME TAX CONSEQUENCES DIFFERENT THAN THIS PARTICULAR DEAL.
This is very typical of "inversions" which seems to be the case here. Your "proceeds" for your "sale" is the fair market value of the stock received. You subtract your basis and come up with a gain or loss. It's "as if" you got proceeds in cash equal to the market value of the "new" company stock and turned around and used that cash to by "new" company stock.
"In the past I have been involved in mergers of two domestic companies
and my shares simply transferred from one company to the other without
any tax implications instead of being forced to sell and purchase shares
like this..."
Typically "stock for stock" deals are non taxable events but not in this case.
Somewhere along the line you got a thick proxy/prospectus/registration statement of some sort and if you look there will be a section called something like "Material United States Federal Income Tax Consequences of the Merger" or something similar and that will spell out for you how shareholders report the transaction on their income tax return. Nobody reads these things beyond the first page or two, but you should always read that section.
Tom Young
