How do I handle a stock transaction that is a merger?

[cman]

how do I handle a stock merger - where I get a new stock that replaces old stock 

[TomYoung]

There's no universal answer to that question.  Did you get a 1099-B?  If you did then you have a stock sale to report, even though you didn't initiate the sale with your broker.  If you didn't get a 1099-B then, apparently, it was a tax free transaction.

Names of companies involved?

[cman]

I got a 1099 that shows the "sale" but it was not a sale but an exchange of stock Rockwell Collins for United Technologies due to the merger.  I received United Technologies stock equal to the value of my Rockwell Collins stock.  

[TomYoung · Accepted solution]

"I got a 1099 that shows the "sale" but it was not a sale but"

Wrong.  You got a 1099-B so it WAS a sale of your Rockwell Collins stock.

"an exchange of stock Rockwell Collins for United Technologies due to the merger.  I received United Technologies stock equal to the value of my Rockwell Collins stock."

Wrong.  You got 0.37525 shares of United Technologies for each Rockwell Collins share tendered AND you got $93.33 of cash.  You have a sale.

The "proceeds" from you sale are the sum of the cash received and the fair market value of the stock received.  Presumably your 1099-B indicates that figure.  From that you deduct your basis in the Rockwell Collins stock you tendered and recognize the resulting gain or loss.

Your new stock, (including any fraction of a share), has a per share basis that's the same as the per share "fair market value" used to calculate the proceeds and your holding period starts the day after the transaction was completed.

You can use some amount of the United Technologies basis against the Cash in Lieu (CIL) and recognize gain or loss on that transaction.

It's "as if" you sold all your stock for cash and then immediately decided to invest some of that cash in United Technologies stock.

Tom Young

[cman]

Thank you.  Now I understand and know how to handle this.