Background. I owned series A and series B preferred stock in a private company that merged with a public company in 2015 giving rise to large gains.The merger closing date occurred in September 2015 at which time cash proceeds were paid out shortly thereafter but 10% of the sales consideration was placed in escrow for one year and "available to the buyer in certain situations to cover indemnification claims". The quote appears to define this escrow as having imposed "substantial restrictions" on seller's right to receive escrow payment one year later. Ultimately, the escrow was paid in full to the selling shareholders one year later. I later learned that this merger agreement ("MA") stated that the escrow payouts "distributions of cash out of the Escrow Fund should be eligible for installment sale reporting". The MA then proceeds to describe the mechanics of the installment method. The 1099 received in '15 only included proceeds received in such year (i.e. not the escrow amount) and I reported these proceeds net of the full cost basis of the securities on the 2015 return with the intent to report the escrow payments received in '16, if any, as gain (with no basis left to offset) on the '16 return. Am I right to assume that this sale is not eligible for the "open transaction" method (as I reported on the '15 return) and I now must amend the '15 return using the installment sales method?
- posted
7 years ago