Is merger or conversion of Fort Dearborn Income Securities (FDI) to UBS Total Return Bond Fund CL P a "taxable event"?

[shephcj9]

In May 2016 FDI merged or was converted to UBS Total Return Bond Fund Class P. For income tax purposes, do I treat it as a "sale" of FDI and "purchase" of UBS bond fund or not?

[RichardG · Accepted solution]

Yes.  Fund mergers are considered a redemption of investments from one fund and a new purchase in another.

[shephcj9]

Form letter from UBS said, " ... FDI reorganized from a closed-end fund into the P share class of UBS Total Return Bond Fund (UTBPX).  (FDI was under the UBS family of funds.)  Another sentence referred to the transaction as the "exchange of shares from FDI to UTBX."  As my brokerage statement did not contain a 1099-B, I contacted a UBS Customer Service person to find out "why."  He said that the transaction is a fund transfer; therefore, no 1099-B is required as there was no money involved.  The terminology on my brokerage statement at the time of the transfer called it "merger security exchanged."  "Reorganization," "transfer," "merger security exchanged" -- are these terms synonymous/interchangeable or does each one imply different tax implications regarding reporting to IRS or not?

[RichardG]

It appears that your old mutual fund was absorbed by another fund with no change in value to you.  There's nothing to report in that situation.

[TomYoung]

•This will be a tax-free reorganization.
•Shareholders of FDI will receive UTBPX shares having a total dollar value equivalent to the total dollar value of their investment in FDI immediately prior to the time of the reorganization

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The actual words used to describe these "corporate actions" are pretty much meaningless, from a tax standpoint.

[TomYoung]

I haven't looked this one up so I really don't know the answer, but if you got a 1099-B as a result, then the answer is "Yes".

Tom Young

[shephcj9]

I did not receive a 1099-B for the FDI merger.  That's what confused me about whether or not it needed to be reported on my 2016 income tax return.  This is the first time I've not received a 1099-B that I suspected I needed.  Also did not get one for another merger, Nuveen Premium Income Municipal Fund 2.

[TomYoung]

As I said, I didn't look this one up but mutual funds frequently do go through mergers and consolidations that are tax free.  I'm sure you got some information about before the change happened and I'm sure that information told you whether the transaction would be taxable or tax free.

That said, brokers prepare 1099-B's when they are necessary don't prepare them when they are not, so I'll bet you a dollar and give you 5 to 1 that this was a tax free merger.

[shephcj9]

Apparently my confusion is because of my brokerage statement's usage of the term "merger" when both FDI and Nuveen transactions were "transfers" within the same family of funds.  UBS customer service person told me that no 1099-B is required (I take that to mean "therefore, no income tax reporting required.")  Form letter from UBS refers to the transaction as a "reorganization from a closed-end fund into ...an open-end mutual fund ... of the UBS funds.  FDI is one of many closed-end funds in the UBS family of funds.