How do I calculate cost basis on a stock swap and the cost basis of cash within the same acquisition?

[rodness827]

We owned 948 shares of Baxalta. Baxalta was acquired by PLC Shire. The value of our Baxalta stock was separated into two types of compensation in the acquisition.

The first, in exchange, we received 140 shares of Shire PLC of which 124 shares valued at $23,597 were reported as a noncovered security on the 1099B with no cost basis. Since this was an involuntary exchange, and this was a stock swap, how would I calculate the cost basis? Would it equal the $23,597 so there would be no tax liability?

Secondly, the remaining value of the 948 Baxalta shares was paid in $17,072 cash. This would mean we were paid $18 per share in cash in addition to the above stock swap. My wife paid around 20-30 dollars per share while she worked at the company, so how would this cost basis be calculated? If we used the 20-30 dollars a share my wife paid, say $25, then this would show as a loss.

Please assist me in determining the two different cost basis for above. Both were reported to the IRS, both as non covered, neither with a cost basis.

[TomYoung · Accepted solution]

I'm not really understanding what you've said in that first paragraph but I've addressed the Baxalta / Shire transaction here:

https://ttlc.intuit.com/questions/3814587-can-you-help-baxalta-shire-merger-cash-and-stock

The transaction is fully taxable and the "proceeds" of the sale is the sum of the cash received plus the FMV of the stock received.  Your broker has simply broken the proceeds into two parts.

You need to go back through you records and determine your cost basis for the Baxalta stock you've tendered.  That's your obligation as a taxpayer and investor.  The you subtract that basis from ALL the proceeds.  (There's really no need to report it as two sales.)  And you have your resulting gain or loss.

Tom Young

[rodness827]

I appreciate the response, but I don't understand how I can be taxed on the FMV of stock received when I still own the stock and have not "gained" anything. If I am taxed on the FMV now, then sell in say, 10 years, I will be taxed on the sale too. It doesn't make sense to me. I hope someone can explain.

[TomYoung]

Welcome to the world of taxes.  It's "as if" you got paid entirely in cash and then decided to take some of the money and buy another stock.  Your basis in the stock is the fair market value when you received it and your holding period starts then too.

[rodness827]

Thanks for taking the time to explain, Tom. I get it, I don't like it, but I get it.