Corporations sometimes decide to change the place in which they are incorporated for various reasons. A company's decision to change incorporation from one state in the U.S. to another generally has no impact on your cost basis. (Caveat: state and local income taxes such as enterprise zone credits may be impacted.)
The glitch comes when the corporation whose stock you own decides to change incorporation to a foreign country (usually for more favorable tax treatment.) Uncle Sam says, "We can't stop you, but we can tax you when you leave."
This is called a change in domicile or a redomestication (change in location combined with a change in the articles of incorporation.) Sometimes the company even maintains their former U.S. location, but it is no longer the official headquarters.
Examples of this include the move of Transocean Offshore Inc from Delaware to the Cayman Islands, Noble Drilling from Delaware to Cayman Islands, and Ingersoll-Rand to Bermuda.
Change in Domicile Calculator
You can use our "Change of Domicile" calculator to compute the taxable gain you should recognize for the redomestication of the U.S. stock you hold when it moves to a foreign country. The market values in our database are estimated based on the legal date of the move. You should use the actual values reported to you by the Company.
The general rule is that the stockholder must report capital gain income for all the unrealized gain up to the point of departure. The fair market value of the stock on the day the change in domicile is effective becomes the sales proceeds per share. You compare that price to your previous cost basis per share to determine the gain to report. Your new holding period begins on the date of change in domicile.
Unrealized losses are not allowed to be recognized--you carry over your previous cost basis to the new shares in this case and also retain your original holding period.
