Unusual 1099-B

[K-11]

I have a 1099-B that has data entered in boxes 1c, 1d (net proceeds $2619), and 4 ($0 withheld) and cites "cash merger consideration".  These funds were return of principal rather than any kind of income.  How do I enter this 1099?

[TomYoung]

A return of principal is reported on a 1099-DIV, not a 1099-B.  Why do you believe it's a return of principal?  (In any case, a return of principal can be taxable if it exceeds basis.)

That "cash merger consideration" notation does suggest a sale.

Name of companies involved?

[RobertG]

If you still have the shares that you had before the merger, then it is not a sale, it is a return of principal.

The money you received reduces your basis in the stock. As TomYoung says, it can be taxable if it exceeds your basis.

So, you should report the 1099, and claim your basis up to the amount in Box 1d.

Just remember that when you sell this stock, your basis has been reduced.

@TomYoung

[K-11]

HI Tom,  I appreciate your response.  The 1099-b was issued by Carter Validus. Here a an excerpt from the cover letter: "On 10/4/19 Carter Validus Mission Critical REIT, INC (CVREIT) merged with and into Carter Validus Mission Critical REIT II (CVREIT II) pursuant to IRC Section 368(a)(1)(A)... ((value details)). No loss can be recognized... Please refer to form 8937 available on CVREIT II's website for add'l info ... Please consult your tax advisor for the proper reporting of merger cash proceeds and irc SECTION 302 analysis."  Our financial advisor said it was 'return of capital'; the $2619 was moved into another investment.  Value of the REIT remains about $10k...  Does this answer your questions?

[K-11]

Hi Robert, thank you for your response.  Yes, I still have the shares I had before the merger, and I see that my basis in the stock has been reduced.  The amount generated by the sale did not exceed my basis.  As I attempt to enter this 1099-B in the "Investment Income" section in Turbotax, I need data for six fields.  I have three of them: 1a) Description (cash merger consideration); 1c) date sold (10/04/19); 1d) net proceeds ($2619.82)

I have nothing on the 1099-B for the remaining three Turbotax cells: 1b Date acquired; 1e cost or other basis; Sales category(?)  Please advise how to fill these three cells in.  Thank you

[RobertG]

1. The date acquired is the date you acquired the stock.  You can select Something other than a date and leave it blank or enter 'various'.

2. Your basis is equal to the sales price. (Don't forget to reduce your basis in the shares when you sell them.)

3. The sales category is long term non-covered if you have held the stock more than a year, otherwise it's short term non-covered. 

[K-11]

Excellent, Robert, thanks very much.  I was two-out-of-three with guesses....

[TomYoung]

@K-11 @RobertG 

You may want to revisit this.

There are two Form 8937s at the CREATEII's website.  One Form 8937 pertains to a return of capital.  I would think that this would be reported on a 1099-DIV in Box 3 "Nondividend distributions" as that's how these things are normally reported.  100% of the distributions for the year - last one was 11/4 - were considered return of capital.  The other Form 8937 pertains to the merger where CVREIT shareholders received $1.00 in cash and .4681 shares of CVREIT II for each share of CVREIT tendered.  This is a sale and gets reported on a 1099-B.  Accordingly the cash received is not "return of capital" but "proceeds", along with the fair market value of the CVREIT II stock. 

These "cash plus stock" transactions are somewhat complex and the way these sort of reorganizations work is as follows:

1. For EACH LOT of your stock that you gave up you need to determine gain or loss based on the "proceeds" of the sale (cash per share + FMV of stock received) vs. your basis in that lot.
2. Losses are NOT recognized in your tax return, they do not offset gains on "gain" lots.
3. Gains ARE recognized but only up to the LESSER of cash received or the gain as calculated per 1 above.
4. For each lot your basis in the stock of the new company is: Basis in lot of old company tendered - cash received + gain recognized.
5. The holding period of the each lot tendered of the old stock carries over to the new lot received of the new stock.
6. You then attribute, proportionally, basis from each lot of the acquired company to the fractional share and and RECOGNIZE gain or loss on the Cash In Lieu transaction.

Having done all this you report the proceeds per the 1099-B, (which might be only the cash received - excluding the CIL - or cash plus FMV of the stock - it seem like different brokers have different approaches here),  and then derive a basis figure that gets you to the gain (short term/long term) that you derived in step 3 above.

 CVREIT II isn't publicly traded but the Form 8937 uses a value of the .4681 share received of $4.33 for a total consideration of $5.33 per share.

Before making your calculation(s) you first subtract all the dividends from your opening basis, and then start the "cash plus stock" sale calculation(s) from there.

[K-11]

Thanks for your thorough look at this, Tom - I will revisit it.

[K-11]

Tom,

I am not understanding your calculation instructions.  Is it possible for you to take a look at this 1099-B and suggest how to proceed?

[TomYoung]

If you only had one lot of CVREIT then the calculation isn't that hard.  After reducing your CVREIT basis by the cumulative returns of capital you then calculate your gain or loss based on the $5.33 per share "proceeds". 

If your adjusted per share basis in CVREIT is more than $5.33 then you have a loss, which you can't take, so you use the proceeds listed on the 1099-B, enter a basis that's the same amount, and report $0 as your gain/loss.

If your adjusted per share basis in CVREIT is less than $5.33 you have a gain, but the gain you report is the lesser of the gain you've just calculated and the cash received.  Again, you take the proceeds listed on the 1099-B and enter a basis that gets you to the correct gain.

If you have many lots of shares then using a spreadsheet will make the process easier but ultimately you get to the same place - you total up your gains, (using $0 for your loss lots), and then derive a basis number against the reported proceeds to come to your correct answer.

[K-11]

Thank you; I'll take another stab at it..

[tqmsystems]

My question, now that a couple others were answered, is how does one treat the sell date (downloaded from financial house) is in 2020 while the return of principle occurred in 2019 and is included in their 1099 for 2019?

I was told by the financial house that Fanny Mae or Freddie Mac sent this date to them and they filed it with the IRS.  TurboTax keeps flagging this as a problem.

[DavidD66]

I would just change the date to the date you received the proceeds in 2019.