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Purchase Date for Securities Delivered After a Chapter 11?

Shareholder purchases bonds of Company A on 1/1/2009. Company A declares Chapter 11 on 2/1/2009 and emerges from Chapter 11 on 11/1/2009.

On emergence from Chapter 11, all of the original common shares are cancelled, and bondholders are given common shares of the reorganized company on 12/1/2009.

Should the new common shares issued on 12/1/2009 be given a cost basis of the cost of the bonds, with a purchase date of 1/1/2009? Could those newly issued shares be sold for long term capital gains on 1/1/2010?

Reply to
W
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Yes, No.

A court order reorganization out of bankruptcy makes the swap nontaxable. The new stock keeps the same holding period as the original bonds.

Long-term is defined as more than one year. Overlooking the fact that Jan. 1 is a business holiday, in order to have a long-term gain for an asset purchased Jan. 1, you would have to sell on Jan. 2nd of the next year.

Reply to
Alan

And that's because the holding period begins the day following the purchase.

Reply to
Arthur Kamlet

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