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Reorganization

Due to a merger which qualifies as a reorganization, the taxpayer received 1.098 shares of YYY stock and a cash payment of $3.023 for each share of XXX stock he held. These shares were purchased in the 80's. The cash payment exceed $19,000 and he received certificates for the YYY stock. Will the cash payment be treated as a long term capital gain? Will the basis of the new stock be the basis of the old stock? Thank you in advance

George L Anthony snipped-for-privacy@atlanticbb.net

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George Anthony
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No. Each share of XXX cost something. For it, he gets 1.098 shares of YYY and $3.023. Allocate the cost of the XXX proportionately to the YYY and $3.023. The excess of $3.023 over its share of the cost of XXX is long-term capital gain. The remainder of the cost of XXX is the basis for YYY. Seth

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Seth

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