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I received stock and cash from a merger. How do I report this? I got a 1099- B

I received stock and cash from a merger.  I got a 1099-B and it show the cash I received and the stock but I don't know how to report it on my taxes.  I still own the new stock, so do I use the cost basis from the company that was merged WHEN I sell the new company stock or do I report the original cost basis now?

From reading on the internet and here, I think I should report ZERO cost basis for the cash received and then when I sell the stock in the new company I should use the cost basis of the old stock minus the cash received.   If this is correct, is the cash received reported on in TT as a stock sale?

Can anyone help me with this?  Thanks very much, it's alll I have left to figure out before I file.
This is a fairly unusual cash plus stock deal, in my recent experience, but it's darn simple to work with from a tax standpoint.

This was spelled out in the Ocean Rig registration statement here

http://www.sec.gov/Archives/edgar/data/1447382/000095012311089488/y92356a1fv4za.htm#Y92356285

which provides as follows:
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U.S. Holder
The merger will be treated for U.S. federal income tax purposes as a taxable sale by a U.S. Holder of the OceanFreight shares that such holder surrenders in the merger. As a result of the merger,

   •   A U.S. Holder will recognize gain or loss equal to the difference between (1) the sum of the cash consideration (including any cash received in lieu of fractional shares) and the fair market value of the Ocean Rig shares (at the time the merger is completed) received in the merger and (2) such holder’s adjusted tax basis in the OceanFreight shares surrendered in the merger;
 
   •   A U.S. Holder’s adjusted tax basis in the Ocean Rig shares that such holder receives in the merger will equal the fair market value of the Ocean Rig shares at the time the merger is completed; and
 
   •   A U.S. Holder’s holding period for the Ocean Rig shares that such holder receives in the merger should generally begin on the day after the completion of the merger
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So your "proceeds" on the sale is the sum of cash and FMV of the Ocean Rig stock and that's what you base your gain or loss on.  You use the Ocean Rig stock price as of November 3, 2011:

Nov 3, 2011
Open 15.34
High 15.43
Low 14.80
Close 15.02

(The IRS has never defined "FMV" precisely so you're on your own here as to what number to use.  The "close" figure certainly is a safe bet.)

As far as actually entering the trade in TT I've usually advised folks to enter the cash received as the proceeds and "backing into" the basis figure in order to come up with the correct gain or loss.

Tom Young
  • Tom, Thanks so much for your response.  But a clarification for me if you will on:
    'and (2) such holder’s adjusted tax basis in the OceanFreight shares surrendered in the merger;'

    does that mean my cost basis of OCNF stock from my original purchase ( as though I sold it), and if so then what is my cost basis when I sell the ORIG stock?
1)Yes.  You did sell it.  You sold it for cash and FMV of stock received.

2)The FMV of the stock received on 11/3/2011.  It's as if you received cash for the stock received and then immediately turned around and bought it.

Tom Young