CASH STOCK
CASH STOCK
How and where do I report "Cash-in-lieu-of-stock" to the IRS?
Two companies I own stock in split their stocks, but some cash was left over. Each is less than $50. I looked at Pub 550, but that didn't seem to address this particular item...
Any and all help or guidance will be appreciated...
Thanks.
Technically, some of your basis is allocated to the partial share (see publication 550, "fractional share" to see the math), but the IRS won't mind if you put $0 down as your cost basis on the schedule D.
Fractional shares. You may not own enough stock in a corporation to receive a full share of stock if the corporation declares a stock dividend. However, with the approval of the shareholders, the corporation may set up a plan in which fractional shares are not issued, but instead are sold, and the cash proceeds are given to the shareholders. Any cash you receive for fractional shares under such a plan is treated as an amount realized on the sale of the fractional shares. You must determine your gain or loss and report it as a capital gain or loss on Schedule D (Form 1040). Your gain or loss is the difference between the cash you receive and the basis of the fractional shares sold.
Example.
You own one share of COMMON STOCK that you bought on January 3, 1999, for $100. The corporation declared a common stock dividend of 5% on June 30, 2007. The fair market value of the stock at the time the stock dividend was declared was $200. You were paid $10 for the fractional-share stock dividend under a plan described in the above paragraph. You figure your gain or loss as follows:
Fair market value of old stock $200.00
Fair market value of stock dividend
(cash received) + 10.00
Fair market value of old stock and stock dividend $210.00
Basis (cost) of old stock
after the stock dividend
(($200 ÷ $210) × $100) $95.24
Basis (cost) of stock dividend
(($10 ÷ $210) × $100) + 4.76
Total $100.00
Cash received $10.00
Basis (cost) of stock dividend - 4.76
Gain $5.24
Because you had held the share of stock for more than 1 year at the time the stock dividend was declared, your gain on the stock dividend is a long-term capital gain.
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