The majority of stock mergers are tax-free, except for the "cash in lieu" payment paid for fractional shares.
Many brokerage firms simply list the "cash in lieu" payment (often denoted as CIL) as sales proceeds with no cost basis allocated to it. You end up paying tax on the entire cash payment, even though you have basis you are entitled to claim.
On several recent bank mergers, failure to claim basis on "cash in lieu" payments results in higher taxes owed. For instance, on the Wachovia merger with Wells Fargo, a typical cash in lieu payment might be $25, but the cost basis that could be allocated to the fractional share might be $186 or more based on stock prices earlier in 2008. Instead of paying tax on $25, you could claim a loss of $161 against your other income if you make the effort to report your cost basis!
Click on the image below to access our stock merger calculator.
Stock Merger Calculator
The calculator has pre-filled data on recent stock mergers such as:
Merrill Lynch with Bank of America Wachovia with Wells Fargo National City with PNC
In using this calculator, make sure that the cash you received was for cash in lieu of fractional shares and that you are not in fact looking at a "cash to boot" transaction.
If you know of other stock mergers, please help us build our database for the benefit of all users. Please send us the details so that we can add it to the table of pre-filled values in the merger calculator.
