New Tax Reporting Requirements For Corporate Actions Affecting Stock Tax Basis

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Beginning on January 1, 2011, regulations1 issued under Section 6045B of the Internal Revenue Code will require any domestic or foreign corporation that undertakes an “organizational action,” such as a merger, acquisition, recapitalization (including a stock split or stock dividend), or similar transaction, that affects the tax basis of its outstanding stock2 to comply with certain tax reporting requirements. The regulations apply to both private and public corporations.

While there is currently no Internal Revenue Service (IRS) form for the information return, the regulations require, among other things, a description of the transaction and relevant Internal Revenue Code provisions, the quantitative effect of the transaction on the basis of the corporation’s stock as an adjustment per share or as a percentage of the old basis, the data supporting the calculation, and any other information necessary to implement the adjustment.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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