I owned an ADR of a foreign company ("FC"). The FC did:
A. a reverse stock split 13:12, B. change the nominal value of the common shares from $0.30 to $0.01; and C. made a distribution of $x/new shares
On line 15, it states "...aggregate new stock basis will generally equal the old basis plus gain, less cash received (but old basis and gain must be determined by each individual shareholder). Generally, new basis should be allocated amongst the shares received in a way that reflects the basis and holding periods in the shares surrendered."
On line 16, it states "We believe that in most cases, the transaction will not result in an aggregate tax basis adjustment, i.e., in those cases in which the resulting gain is greater than the cash distribution. However, if the cash received exceeds the gain, the new basis would likely decrease (i.e., only the gain and not the cash amount would be added).....The FMV on the transaction date (March 27, 2014) date was approximately $14.21."
Questions:
- What is the "gain" mentioned in Lines 15 & 16 -- the difference between the FMV of the new shares on 3/27/2014 and the basis for the old shares? But I don't think so -- in view of the statement on line 16 "...in most cases, the transaction will not result in an aggregate tax basis adjustment...." -- different shareholders would have different purchase price and therefore the the "gains" cash received (a flat $/share payment).
So, what is the "gain" in this case?
- The payment/distribution for this transaction in C. above is clearly not a dividend (no withholding tax was deducted). But the 1099-DIV I received shows it as a Qualified Div. The brokerage firm tells me that is because it was reported to them as a Dividend; and they can't change it unless the FC changes it.
So how should this payment be classfied -- 1099-B ? And does the FC need to amend their report to the brokerage firms?
- A side question. Who makes the w/o tax deduction -- the transfer agent? Or the financial institution that holds the ADR for the investor? Or some other entity?
TIA