stock merger capital gain tax's ?

Question

My stockbroker sold 800 shares of RD (Royal Dutch) in Dec of 05, it was reported to the IRS in the Transaction Column as a Sale Due To Merger.on my 1099, It came to roughly $49,200. 28 days later in 2006 he reinvested and, bought 400 shares of the new Royal Dutch - A (merged stock) about $24,000 and, the rest of the money he threw into a Rochester Mutual Find. I had no knowledge of the transaction. i inheretied this stock in 1999 at the time the 800 shares were worth $38,400. The big trick question ......Was this the right thing to do by the stockbroker and, how in the hell would I figure out what I owe the IRS on this ??

Answer 1

I am a financial advisor and tax advisor. I will answer your 2 questions.

What is the tax effect? You must compute the gain based on the sale of the old RD. The gain is the net proceeds (the $49,200 less any commissions). You subtract from that amount the value of the stock on the date of the death of the person you inherited it from. So, based on what you 've said, you've got about a $10,800 gain. It is "Long-Term", so that the highest tax on this gain would be about 15% at the federal level.

As far as what the broker did, that depends on whether you gave your broker "discretion" to handle your account. If you gave him discretion, then he could purchase anything on your account that he felt was appropriate based upon your risk tolerance. If he had no "discretion" over your account, he shouldn't have done anything without discussing it with you first.

Was it a good move financially? I have no idea since I do not know your personal situation and factors.

-- A Damn Good Tax Advisor

Answer 2

Look at your contract with the broker. If you authorized him to make changes on his own direction then he acted properly. If not, then he acted improperly.

The 2005 sale has no tax consequences for 2006; it should have been accounted for on your 2005 return.

There are no tax consequences on the 2006 purchase unless you also sold the shares in 2006. It wasn't a wash sale since you had a gain on the sale of the old shares and the new shares weren't "substantially identical" to the shares sold.