Nontaxable Exchanges and Taxable Fractional Shares in header of articles
Nontaxable Exchanges and Taxable Fractional Shares in content page of articles
Corporate restructuring sometimes involves exchanging shares of stock in 1 corporation for shares of stock in another corporation. These exchanges are frequently nontaxable events for the shareholders of both corporations. However, sometimes the exchanges result in shareholders receiving fractional shares of stock.
Since most companies don't want to administer fractional shares, they'll sell the fractional share and send you a check. This cash is usually referred to as "cash paid in lieu of" on the Form 1099-B your broker sends you. The basis of the fractional share is based on the amount you paid for the original shares.
Ex: Frances has 301 shares of stock in Company ABC. Company XYZ buys Company ABC using its own stock in a 3-for-1 exchange. So Frances is exchanging the 301 shares of Company ABC for 100 shares of Company XYZ stock, and she’ll have 1 share of Company ABC stock remaining. This 1 share is equal to 1 / 3 of a share of Company XYZ stock.
Instead of issuing a fractional share, Company XYZ sends Frances a check with the notation "cash paid in lieu of." The basis of the fractional share is the basis in the share she exchanged for the fractional share.
She’ll report sale of her fractional share on Form 1040, Form 8949.