If ESRX decides that the cost basis is 57.50, as some people are saying, you could be understating your cost basis by $400 and possibly causing yourself to pay additional tax.
Also, don't forget that the cash we received is about 39% of our cost basis.
I agree with your methodology which is in agreement with answer using the "cost basis calculator" available at "costbasis.com". If the company doesn't provide the price of ESRX to use I'll use 55.50 and leave it at that. In my situation (200 shares owned at a cost of $9,178), my capital gain is $5,573 and the basis for the 162 ESRX shares received is $8,991.
I neglected to answer your comment about merger or acquisition.
These words are just a game that corporate America uses. Sometimes they like to say merger because it is a gentler term for the company being acquired.
The bottom line is we got money and stock. Right now, they haven't told us what our cost basis is for the stock. They will have to do this so that we can do accurate calculations before 04/15/2013, when our tax returns for 2012 will be due.
I think the difference is due to the fact that you and I have not picked the same number for the cost basis of our ESRX shares. What we have is different estimates.
I just called the Investor Relations department at Express Scripts and was told that the cost basis for our shares is yet to be determined.
We are being asked to watch their web site for further news on this:
Your method produces a completely different answer than that provided by the "basis calculator" posted. I wonder if the difference is whether the acquisition is a purchase by
ESRX or a merger. If a puchase my method and yours agree. If it is a merger not so. In news releases it has been called both a merger and an acquisition of MHS by ESDRX. Which is it or doesn't it matter and one should use the basis calculator.
ESRX has to tell us what they consider to be the ESRX share price used for the exchange.
In doing a rough calculation, I guessed it would be $55.50, which was the closing price yesterday.
Using that number, this is how you calculate the value of each MHS share exchanged:
($55.50 X .81) + $28.80 = $73.76
Subtract your cost basis per share from $73.76 to get the gain. (I assume most people had a gain.)
Unless you had a loss, some part of the $28.80, received as cash, will be taxable as a capital gain for 2012 even if you keep the ESRX shares you receive.
$28.80/$73.76 is about 39%. That would mean that 39% of your cost basis in MHS was paid out as cash. To see how much tax you might owe on that, first multiply the gain times 39%. Then apply the tax rate … hopefully you qualify for the long term capital gain rate.
The remaining 61% of the MHS cost basis gets moved over to your new ESRX cost basis. To see how many shares you should get for your money, multiply .81 times the number of MHS shares that you had. For example, someone who had 100 MHS shares now has 81 ESRX shares.
It's a capital gain (sounds like long term in your case) and is handled on Schedule D.
In my limited experience with the IRS, I found that they appreciate a good faith estimate, as long you as are able to show some logic behind what you did and don't appear to be a cheater.
I don't think you want to attract attention by doing something that they might question or feel they need to verify.
You're right about the Merck cost basis being needed in order to calculate the MHS cost basis.
MHS was 5.35% of MRK when it was spun off. I know that much.
If you were in a drip, can't Merck or their transfer agent help you with what you need?
I still believe my methology was correct but I was probably using the wrong value for ESRX. I am not sure which price to use but the Friday close of ESRX was $54.18. Using this instead of $42.56 would change the percentages to 60.38% and 39.62%, respectively.
I believe this is how you calculate the cost basis of the shares exchanged for cash and those exchanged for stock in ESRX.
For each share of MHS, you received .81 shares of ESRX valued at $42.56 per share (per a press release from ESRX)or $34.47 per share and $28.80 per share in cash for a total of $63.27 per share. This calculates to 54.48% and 45.52%, respectively.
54.48% times the cost of your MHS shares exchanged is the tax basis of the ESRX shares received. 45.52% times their cost equals the cost of shares for which you received cash.
For example, if someone exchanged 100 shares costing $5,000 for 81 shares of ESRX and $2,880 in cash, they would have traded 54.48 of their MHS shares for 81 shares of ESRX and those shares now have a cost basis of $2,724. They sold 45.52 shares with a cost bais of $2,276 for $2,880 for a capital gain of $604.
This above is my opinion, since I am not a tax expert I would like to hear from anyone who has a different opinion on the subject.