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How record BTI buy of RAI RRS feed

  • Question

  • Earlier this year, BTI  bought RAI for $29.44 cash and .526 shares per 1 share of RAI.
    How do I enter this in Money Sunset?

    (Cost basis BTI shares acquired  : $69.25
    figure recommended by BTI at http://s2.q4cdn.com/129460998/files/doc_downloads/FINAL-RAI-ACQUISITION-INVESTOR-FAQ.pdf  )

    Thank you

    Sunday, December 10, 2017 3:17 AM

All replies

  • http://s2.q4cdn.com/129460998/files/doc_downloads/Faq/FINAL-RAI-ACQUISITION-INVESTOR-FAQ.pdf

    As I read it, that was a fully taxable transaction. So you will enter a sell for RAI shares. The total amount will be the sum of the cash received plus the basis of the BTI shares received.

    You will enter a buy for the 0.526 BTI with a total being the sum of the basis of the shares received plus the CIL. The holding period starts fresh for BTI. You will also enter a sell transaction for the fractional shares for the amount of the CIL cash received.

    This type of transaction is motivated by wanting to move from a higher tax place (US)  to a lower tax place (UK, if you can believe it.) UK benefits in various ways including getting jobs.

    Sunday, December 10, 2017 5:46 AM
    Moderator
  • Cal - appreciate the quick reply;  brokerage statement lists as "Merger"

     should I be using the "merge" function in Money Sunset ?

    (Left Menu  > more investing tasks > record special activity > record a merger)

     

    That seems to allow me to list the  0.526 shares BTI  /  share of  RAI  and then to sell the fractional share;

      will this work?

    Also, interesting  note about why companies do this transaction, was unaware of the tax reasons until your explanation.

    Thank you for your help

    Monday, December 11, 2017 1:28 AM
  • A Money Merger action is made for the classic tax-free mergers rather than the fully taxable action. In the tax-free merger, the basis of the original shares get transferred to the new.  Money will not generate a Sell transaction other than for the fractional share. In the fully taxable transaction, you are selling the shares, and the sale of all shares will be reported on 1099-B.

    My comment was about the motivation for moving the domicile rather than why a given merger would be taxable or not taxable. In Money, it is just something you deal with one way or the other. There are rules about what can keep a merger tax free. I expect sometimes it is to the company's advantage to go taxable. Other times what they want to do is not permitted to be not taxable.

    If the stock is in an IRA, you could enter it either way, since the basis won't matter. For a taxable account, you try to reflect in Money the way the IRS will treat it.

    This should turn up some info:

    http://www.bing.com/search?q=%22tax+free%22++merger+%22fully+taxable%22

    Monday, December 11, 2017 5:49 AM
    Moderator
  • Ah, now I see why this is not tax free merger and cannot be entered as such in Money.

    Sorry to be dense,  but to use a simplified example:

    in 2005, purchase 100 shares RAI at $10.00 /sh =  $1000

    in 2017, BTI purchases all 100 shares at $29.44 /sh = $2944 cash

    (which is recorded in MSM as "Sell 100s RAI")

     

    Since BTI gives 0.526s per 1s RAI = 52.6s of BTI at price of $69.25 = $3642.55

    (which is recorded in MSM as "Buy 52.6s BTI"); fractional share later sold

    This will show the RAI sale and the capital gain,   BTI purchase and cost basis, and sale of fractional share.

    Does this look correct ?

     

     

     

     

    Monday, December 11, 2017 9:52 PM
  • Close. Here is what I come up with, but I may have made a mistake.

    In 2005, purchase 100 shares RAI at $10.00 /sh =  $1000

    In 2017, sell 100 shares of RAI for 6925.00 total.
     Buy 52.6 shares of BTI for $3981.00 (=6925-2944) total.
     Sell 0.6 shares of BTI for whatever CIL amount is. Note that when the broker reports that CIL, the 1099B may treat it as basis=0. I am not sure how they will report that. Do what is needed on your tax forms to turn it into 0.6 shares sold basis $41.55 acquired 2017 (I think).

    Usually let Money calculate the per-share prices for the Buys and Sells. You enter the total, and the quantity.

    Your cash account will come out ahead by $2944+CIL

    Monday, December 11, 2017 11:59 PM
    Moderator
  • You definitely want the cash account to come out 2944+CIL ahead.

    But that is completely unrelated to what the US tax law needs.  Using Cal's numbers:
         Your original basis in RAI was $1000
         At the end of the first step, you end up with 52.6 shares of BTI plus $2944.  You now need to figure your basis in both the shares and the dollars.  You need to find the closing price of BTI on the date the merger concluded.  Assume it was $20/share.  The value of the stock on that date is 52.6*20 or $1052.  You total assets from the merger are 1052+2944 or $3996.  The stock represents 23.3% of the assets and the cash represents 73.7%.  Therefore your basis in the stock is 23.3% or your original basis or $233 and your basis in the cash is 73.7% or $737.  Your taxable gain from the cash is 2944-737 or $2307.  The conversion of the stock from RAI to BTI is not taxable at this time.  When you go to sell the stock, your basis per share is 233/52.6 or $4.43
         Now to the second (and final until you sell the rest) step.  You sold .6 shares for some dollar amount.  Your basis in that fractional share is .6*4.43 or $2.66.  From there you can figure your taxable gain or loss.  Even though you sold the fractional share the same day it was issued to you, your acquisition date for determining long- or short-term gain/loss is the date you originally acquired RAI.

    It makes no sense for BTI to recommend a cost basis since they have no idea how much you paid for the RAI stock originally.

    Remember when calculating your actual values to include any commissions and fees to reduce your gain or increase your loss.

    Tuesday, December 12, 2017 12:49 AM
  • You definitely want the cash account to come out 2944+CIL ahead.

    But that is completely unrelated to what the US tax law needs.  Using Cal's numbers:
         Your original basis in RAI was $1000
         At the end of the first step, you end up with 52.6 shares of BTI plus $2944.  You now need to figure your basis in both the shares and the dollars.  You need to find the closing price of BTI on the date the merger concluded.  Assume it was $20/share.  The value of the stock on that date is 52.6*20 or $1052.  You total assets from the merger are 1052+2944 or $3996.  The stock represents 23.3% of the assets and the cash represents 73.7%.  Therefore your basis in the stock is 23.3% or your original basis or $233 and your basis in the cash is 73.7% or $737.  Your taxable gain from the cash is 2944-737 or $2307.  The conversion of the stock from RAI to BTI is not taxable at this time.  When you go to sell the stock, your basis per share is 233/52.6 or $4.43
         Now to the second (and final until you sell the rest) step.  You sold .6 shares for some dollar amount.  Your basis in that fractional share is .6*4.43 or $2.66.  From there you can figure your taxable gain or loss.  Even though you sold the fractional share the same day it was issued to you, your acquisition date for determining long- or short-term gain/loss is the date you originally acquired RAI.

    It makes no sense for BTI to recommend a cost basis since they have no idea how much you paid for the RAI stock originally.

    Remember when calculating your actual values to include any commissions and fees to reduce your gain or increase your loss.

    I am pretty sure that a "fully taxable" merger treats all of your original stock as being sold now. For the more common type of merger, then some or all basis from the original stays with the new shares. But in this case, I believe that all shares of the original holding are reported as sold in 2017.

    This treatment is often a shock to the investor. The managers may get some payoff\\\\\\benefit to compensate them. There can be an advantage to the acquiring company to have had the event treated as fully taxable.  One thing I remember is that it can affect amortizing good will vs expensing something or other. Hard to follow stuff.

    If the price of BTI goes down much after this event, some will sell the new expensive shares at a loss, offsetting the capital gains, or even offsetting some short term gain (unless there is something that I don't know about).

    If you try that Bing search I posted above, I think you will spot an article or two that tells about the two major types of merger. Note that the shareholder vote wording of a vote on the proposed merger, if there is a vote, usually does not make it as obvious as what you would want. The information will be there in the document, but not where it would stand out.


    Tuesday, December 12, 2017 1:08 AM
    Moderator
  • To Cal and Barry -- Thanks for your advice.  Realize forgot to mention that I did go to site:

      http://www.bing.com/search?q=%22tax+free%22++merger+%22fully+taxable%22

    to do some research;  based on what I read,  believe Cal is correct that this is a fully taxable event, not a tax free merger, which changes how the calculations are done. (I was incorrectly using the "merge" function in MSM.) "This treatment is often a shock to the investor" is so true.

    Using your examples, I am going to re-enter the amts in MSM so the transactions are correct and so is the tax math;  also plan to head over to the articles website for more study.

    Thanks to both of you for all your assistance.

     

     

     

    Tuesday, December 12, 2017 6:19 PM
  • I am confused about your calculations of basis percentage.  How did you calculate them?  Is it the stock value/total value and cash value/total value?  If yes, then the figures are 1052/3996= 26.3% (as opposed to 23.3%) and 2944/3996= 73.7% (as you calculated).  Is there a typo in your above text?

    Thanks for your kind attention.

    Friday, April 13, 2018 3:32 AM
  • Obviously the two percentages need to add up to 100.  Your arithmetic is correct and I hope that my mistake was just a typo.
    Friday, April 13, 2018 8:18 AM