On June 23, 2017, CM completed an acquisition of PVTB for cash and shares. Should I then report cost basis equal to the sale proceeds of PVTB, resulting in no gain?

[trevorfast]

I'm trying to understand how to properly report my tax basis resulting from the mandatory stock exchange portion of the transaction. Investor materials state that "(i) the merger will qualify as a ‘‘reorganization’’ within the meaning of Section 368(a) of the Code and (ii) the merger will not result in gain recognition to the holders of PrivateBancorp common stock" and "a PrivateBancorp common stockholder generally will recognize gain or loss with respect to cash received instead of fractional shares of CIBC common stock that the PrivateBancorp common stockholder would otherwise be entitled to receive." 

[TomYoung · Accepted solution]

"Should I then report cost basis equal to the sale proceeds of PVTB, resulting in no gain?"

Only if you have a loss on the transaction, a loss you cannot recognize.  That is, if your proceeds from the sale:

(# of shares tendered x 0.4176 x $80.09) + (# of shares tendered x $27.20) is less than your basis of the shares tendered then you'd report a basis figure on the sale equal to the proceeds, (which might be the sum of the FMV + cash or simply the cash - wait for the 1099-B), for no gain or loss.

Otherwise you'll recognize a gain that's the LESSER of proceeds (as defined above) minus your basis, or the actual cash received.  You'll have to derive the basis to report in this case to get to one or the other of those two numbers, whichever one is less.

At this point your basis in the new stock = basis in old stock tendered - cash received + gain reported.

You'll then sell your fractional share in the new stock using the "cash in lieu" as the proceeds, recognizing gain or loss as appropriate.

Tom Young

NOTE TO FUTURE READERS OF THIS ANSWER:

You must understand that the answer given is relevant to this particular transaction.  There simply is no one or two sentence answer that covers all cash + stock mergers/acquisitions.