Tax on foreign stock rights issue

Forum|Forum|5 years ago
March 7, 2021
8 replies
66 views

I own stock in a foreign corporation (Rolls-Royce). Last year (2020), the company had a Rights Issue, but US investors were not allowed to participate. Subsequently, the company considered the Rights to be lapsed, issued new ordinary shares and sold them on my behalf, resulting in a cash payment to me. No US tax forms (1099) were issued.

I can’t decide how to account for this from a tax perspective. My options so far are:

1) Treat the payment as a non-dividend distribution, which is not taxable, and adjust the basis of my existing stock. No entry required on my 2020 tax return.

2) Treat the payment as if I had sold the Rights, and calculate the gain or loss using established methodology for Rights, and enter the information on form 8949.

3) Treat it like cash in lieu of a fractional share, and report it on schedule D, or maybe form 8949.

I would appreciate any advice or insight on how to input this to turbotax (or not input it).

RR_1

Level 2

Computershare just issued the 1099-B 's, mine refers to the form 8949. The 1099-B has no cost basis so it's still a bit of a search exercise

fanfare

Level 15

you have an esoteric situation and you need a really expert tax attorney or accountant to get the correct answer.

pick one of your proposed solutions. Keep good records.

if you got a 1099-B that restricts your options. all you need is a cost basis.

aruba

Level 2

I was part of the same Rolls Royce rights issue. My rights were sold, and I received a cash payment. The Rolls Royce investor relations website states the following:

Although the U.S. federal income tax treatment of the Rights issue is not free from doubt, RR believes
it is reasonable to treat the distribution of Rights to RR's shareholders as a non-taxable distribution for U.S. federal income tax purposes. On the Distribution Date, the fair market value of the Rights was more than 15% of the fair market value of the Existing Ordinary Shares with respect to which the Rights were issued. As a result, U.S. holders that exercised or sold their Rights must allocate the tax basis of their Existing Ordinary
Shares between the sold or exercised Rights and the Existing Ordinary Shares with respect to which the Rights were issued, in proportion of the Existing Ordinary Shares and Rights' respective market values, determined as of the Distribution Date. In the event that a U.S. holder allowed the Rights to lapse without selling or exercising them, the Rights are deemed to have a zero basis and the tax basis of the Existing Ordinary Shares with respect to which the expired Rights were distributed remains unchanged from their tax basis prior to the Rights issue.

I received a 1099-B for this. How would this be reflected in TurboTax? TurboTax is asking for the date acquired and cost basis. Since it is considered a Non Taxable distribution, it would involve lowering the cost basis of RR stock by the amount of the payment. Not sure how to reflect this in TurboTax.

mitulsvnit

Level 2

Were you able to figure out right treatment for this case?

D_wave27

Level 2

Checking here to see if you decided on a course of action!

ams21Author

Level 2

I did not pursue any professional help on this topic, so my solution may not be correct or appropriate for anyone else. It was the solution that I felt comfortable with after reading as much IRS information as seemed pertinent.

I did not get a 1099-B, so I treated the cash payment as a fractional share of a stock dividend, and reported it on forms 8949 & schedule D.