ADR conversion incurring Stamp Duty Reserve Tax: Can I deduct or add to cost basis?

[tangofan]

I am holding common shares of Diageo, a British company quoted in GBP currency ( https://finance.yahoo.com/quote/DGE.L/ ) that I purchased several years ago.  Recently I initiated the ADR Conversion of those shares into the corresponding American Depositary Receipt (ADR), Ticker-Symbol:DEO.

In addition to the handling fee that my broker charges, I was also told that there will be a charge for "Stamp Duty Reserve Tax" for this ADR conversion in the amount of 1.5% of the value of the shares converted.  (FWIW I found this info about this levied tax: https://www.sec.gov/Archives/edgar/data/806968/000119312505222886/dex2.htm ).

Can I add this Stamp Duty Reserve Tax to the cost basis of my ADRs?

[KochuK]

IRS Pub 550 Investment Income and Expenses, page 40 says:

The basis of stocks or bonds you own is generally the purchase price plus the costs of purchase, such as commissions and recording or transfer fees.

chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.irs.gov/pub/irs-pdf/p550.pdf 

Stamp Duty Reserve Tax (SDRT) is paid on the paperless purchase of the UK shares.

If this ADR conversion fee is ordinary and necessary in order for you sell the shares via your US brokerage in the future, I would agree to add to the cost basis.

Hope this helps. Thanks for posting the question.

[tangofan]

@KochuK thank you so much for your response. I do have one followup question though.

You write "If this ADR conversion fee is ordinary and necessary in order for you sell the shares via your US brokerage in the future, I would agree to add to the cost basis.".

My US brokerage (Interactive Brokers) allows me to buy and sell shares on the London Stock Exchange (and other foreign exchanges), so this ADR conversion isn't necessary to be able to dispose of the shares in the future.

Converting those shares to ADRs however makes it easier to do sell them in the future should I ever decide to switch to a different broker who does NOT offer international trading, because I will be able to use a U.S.  exchange to sell the ADRs. Also I do not have to deal with foreign currency conversion anymore for dividend payouts and sales.

If I understand you correctly though, that means your criteria isn't met and I should not add the SDRT to my cost basis. Is that correct?