How do I figure cost basis of stock? I purch 1000 shares of stock for $5000. The comp was bought & shares turned into 589 shares of new comp & given $1070 a cash portion?

[TomYoung · Accepted solution]

I assume your real question is "what basis do I use to report this sale"? and not "what's my basis in my new stock?"

I was finally able to track down the Form 8937 here:

http://bancorpsouth.investorroom.com/form-8937

This describes typical Section 368(a) accounting, namely,

• you make your calculation on a lot by lot basis,
  
• no losses may be claimed or netted against gains
• the reported gain is the lesser of the cash received or the gain calculated as (cash received + stock received) - basis in stock tendered.

There is a confounding complication here though, namely. "the shareholders of the Company are entitled under the Agreement to an interest of up to approximately $0.96 per share comprised of proceeds deposited in an escrow account, if, to the extent and when released to the Company’s shareholders.

This escrow amount should be included in the "proceeds" calculation and this also allows you to use the installment gain reporting method, (for a gain only), although you can elect out of doing so.  (Additionally, TurboTax makes it difficult to use the installment method unless the stock is Qualified Small Business Stock.  It can be done, but it takes some amount of workaround.)

In the Form 8937 the company has noted "The October 1, 2018 closing price of a single share of BancorpSouth common stock on the New York Stock Exchange was $32.67" so that's a reasonable "fair market value" to use for the BancorpSouth stock received.

For sake of illustration only and ignoring for the moment the amount in escrow and assuming that 1,000 shares is all one lot I'd say you have a gain of $1,070 as that's less then ((589.7 x $32.67) + $1,070 ) -$5,000 = $15,335.50.  So you DERIVE the basis to use against the proceeds to come to that $1,070 reportable gain.

Read the Form 8937 all the way through.  They've posted a few samples for you to follow.

This ignores the escrow amount to be received later, final amount yet to be determined, so you may want to extend you income tax return and get some local professional advice here, when things calm down.

Tom Young

[LisaS]

$5000 basis less cash in lieu = $3930 basis divided by 589 shares = $6.6723 basis per share as long as there were no dividends involved.

[reneethecat]

I have not sold any of the shares but do I do a cost basis for the $1070 they gave me?  Thank you!!!

[LisaS]

ahh, there is $0 basis in that piece.  It's common when stock is exchanged for shares in the new company.  If you held the stock long term then the gain is long term.

[TomYoung]

There's simply no "one size fits all" answer to your situation.  How you account for the transaction depends on how the deal was structured.  Names of companies involved?

[reneethecat]

Thank you!  Icon Bank (a private bank) was bought by Bancorp South