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I held some ANDV stock that got bought out by MPC. Terms of the deal were approximately 1.626 shares of MPC per ANDV share, plus $19.80 cash per ANDV share. My 1099B is showing a gain of $1,643.32 (that's the cash payout; no shares of the new MPC were sold) on 83 original shares of ANDV, but the broker is reporting my cost basis as $0, meaning I'll have to pay more in taxes.

In reality, I believe my cost basis is really ($19.80 / $152.27) times my ANDV cost basis. (Where did I get $152.27? That was the original cash consideration per ANDV share, but I elected all shares; since there weren't enough shares, ANDV shareholders got part MPC shares and part cash)

Is it worth it to report a basis to the IRS that differs from the basis reported by my brokerage ($0)? I'd like to avoid an audit at all costs due to the hassle involved, so if this makes that more likely then I'll probably just suck it up and use the $0 basis, as the difference is only about an extra $100 in federal taxes owed.

(Aside: Does the IRS give you firm guidance in the form of a formula for how to determine basis when you're not actually selling any shares but rather receiving shares in a new stock, plus a lump of cash? Or do they leave it up to the taxpayer to apply common sense?)

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  • If your broker's website is like mine it should show your basis in the new shares you received, which should be the same amount they used to compute the 'difference in basis' for the transaction. PS: I get 1.626x83=134.958 -- are you sure that fractional share wasn't paid 'cash in lieu' which is treated as a sale for tax purposes?
    – dave_thompson_085
    Commented Mar 31, 2019 at 19:05
  • Why do you think the broker is wrong apart from simply preferring your math?
    – quid
    Commented Apr 1, 2019 at 7:55

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Your broker may actually be correct. Your entire basis in the ANDV stock is transferred to the MPC stock (provided the value of the MPC stock exceeds that basis), and the cash payment is separately taxed as an immediate gain. See this article:

If you receive cash in the deal, you report that amount to the IRS as a gain; but if the total gain from the deal – in cash as well as stock – was less than the cash you received, you report the lesser amount.

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