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Question
I owed stock in Solutia Inc when it filed for bankruptcy on 2003 under chapter 11.  The company emerged from bankruptcy on 2/2/2008, cancelled the old shares, and reissued new (though far fewer) shares.  More recently, Eastman Chemical acquired Solutia in 2012 and issued cash and Eastman Chemical stock in exchange for the Solutia shares.

May I use the cost basis for my original Solutia shares as the cost basis for the fewer, new Solutia shares in computing the loss on the Eastman transaction?  If so, since I had no gains to offset in 2012, may I carry the loss forward to 2013?  Or, am I just out of luck as the loss should have been claimed back in 2003? Another possible alternative is to use the market value of the new Solutia shares on the date of emergence from bankruptcy as the cost basis for computing the gain on the Eastman transaction.

Answer
Rich,

Thanks for your question.

Since you received new shares in place of your old Solutia shares, your basis in the old shares transfers to the new shares.  When you received cash and Eastman shares for your new Solutia shares you need to allocate that basis between the value of the shares received and the cash received. It is treated as a partial sale.  

Just to use some simple numbers, assume your basis in Solutia was $100.  You received cash of $75 and shares valued at $75.  So you got $150 of "stuff" for your $100 of shares. You will allocate half of the $100 to the cash received and report a $25 gain.  Your remaining Eastman shares now have a basis of $50.

Hope this helps.

John Stancil, CPA

Tax Law (Questions About Taxes)

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John Stancil, CPA

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I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I am Professor Emeritus at Florida Southern College. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE. Visit my website at www.mybaldcpa.com. I also offer seminars and consultations to churches and clergy on their tax issues at www.churchtaxsolutions.com Also visit my blog, www.thetaxdocspot.com. I am listed on Tax Connections at https://www.taxconnections.com/profile/John-Stancil/12258973 Prepare and file your own taxes at www.1040stancilcpa.com

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I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.

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FICPA, NATP, NCPE Fellowship, Lakeland Business Leaders

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The CPA Journal, Florida CPA Today, Green Consumer, Green Business, Global Sustainability as a Business Imperative, Palmetto Review, NATP TaxPro Quarterly, Mustang Journal of Finance and Accounting.

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DBA University of Memphis MBA University of Georgia BS in Accounting Mars Hill University

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