Basis Of Stock Thru Bankruptcy

[Fulbert]

s About Taxes)/Basis of Stock thru Bankruptcy Advertisement Expert: John Stancil, CPA - 3/5/2013 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.

[Barindra]

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