(NA) Question about forced stock sale/Tax implications

[FastEddieB]

This is really a question for my accountant, but he's naturally swamped with 4/15 coming up and has not yet returned my call placed yesterday.

The scenario is that I owned quite a few shares of Pepco Holdings.

Past tense, because yesterday all of my shares got sold, involuntarily, as a result of the approved merger.

Good news - the price got a nice bump last week with the proposed merger with Exelon.

More good news - I have nice gains in it originally dating back to 1985.

Bad news - I really don't need the Capital Gains in 2016 - it affect all sorts of things beyond the tax and tax rate, including a subsidy we get for Karen's Obamacare plan.

Before the year is over, I will of course try to find losses to offset at least some of those gains.

Questions to any accountants here - is there any other way to avoid the Capital Gains tax on the proceeds, maybe with a repurchase of Exelon stock with the proceeds within a set time frame? I seriously doubt it, but I want to be sure before I reinvest the proceeds.

Thanks in advance - its a nice problem to have, overall!

 

[Chip Sylverne]

Not an accountant, but been through this. My experience was that thwre's a long term gain, and there's no way around the tax. There's an explicit exclusion in Sec. 1031 for securities.

Maxed out IRA? Got an HSA you can max a contribution? Make a sizeable charitable contribution with appreciated securities?

 

[EdFred]

Did it get converted to the new stock, or did you just end up with money in your account?

 

[FastEddieB]

Just money in the account. I think this is the first time it's worked this way.

I'm retired and have no "earned income" to add to my IRA. 70 1/2 is no longer in the distant future, so before very long there's going to force me to start drawing from it.

Normally I cannot come up with enough in itemized deductions so that they exceed the standard deduction, though I'll keep an eye on that.

 

[rpadula]

Looks like the merger deal was $27.25 cash for each share of Pepco stock. I've had similar happen to me. No way around it AFAIK. Rack up some gambling losses

It's nice when you get shares of the acquirer in a takeover; you just carry your original cost basis forward. Except if the company does an inversion and moves offshore. Then it's like a forced sale and you'll owe taxes on any capital gain. And for bonus screw points, you can't get to use losses if you have any. Punish the shareholders and all that.

P.S. also not an accountant.

 

[Hank S]

This happened to me with a previous employer when the company was purchased. Our stock disappeared everything in 401(k) rolled into new owner's stock. Other shares awarded, along with options and those fun things that replaced options, were sold, taxed and distributed. The sold stock showed up on my W-2, so I just filed with. I additional paperwork.

Then coworkers started complaining,and sure enough I got a letter from the IRS wanting a large chunk if the proceeds. So I printed off the check stubs I was given for each transaction, and the taxes withheld were more than they wanted me to pay. Fired off a registered letter with copies, and an easy-to-understand table, asking for them to refund the difference between what I had paid and what they are. Is asking for. Got a return letter with. I check, stating that I didn't owe them anything after all . . .

Be careful, the IRS doesn't play fair, and they don't feel bad about changing the rules on you. If you must go to court, don't go to Tax Court, that's their home field, they meet when & where they want, and change dates and locations on a whim. Go to your local Federal Circuit Court, the rules there are very clear and can't be changed on a whim. Otherwise, you won't have a chance.

 

[FastEddieB]

Thanks.

The general consensus seems to be that in spite of the involuntary nature of the sale, its still just a cash sale and subject to Capital Gains tax.

I guess one should not be too unhappy about taking profits, even if taxed and unexpected.

 

[PaulS]

Just pay the tax if you don't have any losses to offset it, and remember the extra 5%, if you are in that bracket, when you vote in November.


Edit: Oh, almost forgot the 3.8% net investment income tax, if you qualify.