[baovle]

My original stock went through a few mergers, and I wonder how to do the tax report for 2009:

1) April 2000: Bought 100 shares of OnDisplay stock for 66.9/share
2) July 2000: It got bought by Vignette and became 158 vignette shares at 33.88/share
3) June 2005: Vignette did reverse split: 158 shares turned to 15 shares
4) July 2009: Vignette got merged with Open Text and 15 shares of Vignette turned to 2 shares of Open Text

I received the 1099-B form for the sale of 15 shares of Vignette stocks for year 2009. How should I report this? Should I get the cost basic from the top of the food chain (with the original OnDisplay stock), or I have to get the cost basic of the 15 shares of Vignette stock? I haven't done this reporting in the past and my investment on this went from $6700 to $200 in ten years.

Thanks,
Bao

[AtlantaTaxExpert]

Bao:

Your cost basis is what you originally paid for the original OnDisplay stock.

You have a long-term capital loss of $6,500.

[ebaines]

If I understand this, your 15 shares of Vignette got turned into 2 shares of OpenText, and you also received cash in the merger as well -according to their web site you should have received $8 per share of Vignette. The trick now is to figure out how much of your original investment should be considered as sold, versus how much was converted to Open Text shares. Did OpenText send you any information to help you figure this out? I can take a stab at it for you, but if they sent you info on how to do this calculation you should follow that instead of what follows. But here's how I would do it:

From a press release I found on the Open Text web site (Press Release Details - Open Text Corporation), it seems that your 2 shares of Open Text were worth $36.84 each on the date of the merger, and you receieved $8 for each of your Vignette shares. So you received 8 * 15 = $120 cash plus $2*36.84 = $73.68 in Opentext stock, for a total renumeration of $193.68. Your original cost basis of $6900 gets split in two -- some of it is allocated to the sale of Vignette stock in exchejnge for the $120, and some to the new cost basis for Open Text. The Vignette sale part is $120/$193.68 = 61.95% of your original $6900 investment, and the other 38.04% of your original investment is the cost basis for your new OpenText shares. Hence for 2009 you report the sale of 15 shares of Vignette for $120 with cost basis of $6900 x 61.95% = $4275.09. Your new cost basis in the 2 shares of OpenText is $6900 x 38.04% = $2624.91. Keep that information for the future - you'll need it for when you sell your Oppen Text shares.

The only other thing to add is that if you received cash in any of these mergers and reverse splits in lieu of partial sares, you should have reported the sale of those partial sales on previous tax returns, and that would have reduced your cost basis. For example, the reverse split of Vignette appears to have been a 10 for 1 reverse split, which means you were due to receive 15.8 shares. Usually companies don't issue partial shares, so they probably sent you cash in lieu, which means you effectively sold 8 shares (of pre reverse split stock)for that cash. This reduces your current cost basis in the remaining investment from $6900 to something less; I calculate $6900 x150/158= $6550.63. If you didn't report this back in 2005, don't worry about it now.

[baovle]

Thank you for your answers. I however reported $120 as capital gain for 2009 filing. I plan to sell the 2 shares of OpenText in 2010 and then report a capital loss of $6690 (original cost basis) less the sale proceed of the 2 shares of OpenText. Hope this is correct.