IRS Publication 550 (Investment Income and Expense

IRS Publication 550 (Investment Income and Expenses) , page 48, gives guidance on determining cost basis when a corporate recapitalization occurs.

If Amarantus conducts a spin-off of their diagnostics division, the company should provide information to shareholders regarding how to calculate adjusted cost basis as described below. Then it becomes a fairly simple calculation. I expect most brokers would automatically update the cost basis for all AMBS and spin-off company shares in our accounts. No headaches at all. LOL

Quote:

---

Corporate Stocks

The following trades of corporate stocks generally do not result in a taxable gain or a deductible loss.

Corporate reorganizations . In some instances, a company will give you common stock for preferred stock, preferred stock for common stock, or stock in one corporation for stock in another corporation . If this is a result of a merger, recapitalization, transfer to a controlled corporation, bankruptcy, corporate division , corporate acquisition, or other corporate reorganization, you do not recognize gain or loss .

Example 1
(not relevant to this discussion)

Example 2
On July 26, 2013, RGB Corporation divests itself of SFH Corporation. You hold 75 shares of RGB stock with a basis of $5,400. You receive 25 shares of SFH stock as a result of the spin-off. You do not recognize any gain or loss on the transaction. You receive information from RGB Corporation that your basis in SFH stock is equal to 10.9624% of your basis in RGB stock ($5,400). Thus, your basis in SFH stock is $592.00. Your basis in RGB stock (after the spin-off) is $4,808 ($5,400 – $592).

Note:  In the case of a spin-off, the divesting corporation should send you information that includes details on how to allocate basis between the old and new stock. Keep this information until the period of limitations expires for the year in which you dispose of the stock in a taxable disposition. Usually, this is 3 years from the date the return was due or filed, or 2 years from the date the tax was paid, whichever is later.

---

                                    – The IRRELEPHANT –
           Posting Irrelevant Nonsense on a Message Board Near You