How to report exchange of stock for stock & cash - Spidell

How to report exchange of stock for stock & cash

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Message Board How to report exchange of stock for stock & cash

This topic contains 1 reply, has 2 voices, and was last updated by Larry Pon 2 months, 1 week ago.

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  • #159946
    Linda Kramer


    Company A, an S-Corp, was acquired by Company B on 6/28/19.  My client, owning 4.2% of the outstanding Company A stock, received Company B stock and cash in exchange for his shares of Company A.


    I’m confused as to whether:

    • this is a partially taxable Like-Kind exchange using Form 8824, with boot, or
    • if the entire transaction is reported on Form 4797, resulting in a LT Loss, without any “boot” recognized, or
    • something else?

    Also, does the Company B stock take on the adjusted basis of Company A stock?


    These are the facts:


    • Company B buys Company A


    • Actual cost basis in Company A stock = $ 39,230 (2500 shrs)


    • “Stockholder’s Tax Basis” in Company A stock as reported by Company A is = $44,058 (2500 shrs)


    • “True Up” in Book Value of Company A stock = $106,555 + 4,216 (change in book value) = $110,771 (2500 shrs)


    • Taxpayer’s Settlement for his 4.2% shr of Company A stock =   $106,555 = $81,583 cash + $24,972 in Company  B stock (674 shrs)


    How report on tax return?

    LT Gain or Loss?

    Any Ordinary Gain on boot?

    Thank you VERY much!


  • #161115
    Larry Pon

    Under TCJA, 1031 exchanges only apply to real estate starting in 2018.   Therefore, this transaction would not be reported on Form 8824.

    This sounds like a stock for stock merger with some cash.   The cash is subject to tax. and accordingly capital gains.   The New Stock will take on the Cost Basis and holding period of the old stock.   However, there are a lot more details to consider.   You should consult a corporate tax expert or a tax professor who teaches the Corporations II class in the Masters in Tax program.   Your fact pattern is a classic fact pattern covered in that class.