>>>For taxable accounts, the basis of the shares issued re the dividend will be the amount of the dividend had it been paid in cash (ie the amount taxable).<<<
Other potential problems that might crop up in avoiding the dividend could be--
1) A sale of recently bought cheap shares will trigger a short term taxable gain that could be substantial considering the price is up about 500% in a month.
2) A large long term loss could be triggered on old high priced shares that could only be written off against other long term gains and an additional $3000. --OR--
3) If you buy back high priced stock before 30 days you have created a wash sale which is another pain in the neck bookkeeping situation that is reported on your tax return.
Those are more issues to be considered in addition to the economic ones you mentioned
>> So, a taxpayer has an opportunity to select higher basis shares, or long term shares for example if using this method of computing gain or loss on sale.
Absolutely .. it appears that some are conflating the proper basis of the stock-div and the result of a stock-sale, which are two completely separate events.
The cost basis of the stock-div will be described by ACAS if/when the distribute the shares. I recently posted the IRS docs allowing stock-divs for this purpose and it specifically addresses the pricing of this stock's basis.
When selling a sub-set of your shares in a company, you can always choose which shares you are selling. So, for all of you out there that are holding shares at $20+, you can sell those off if you wish when you get the stock-div and take the write-down .. and less shares to even yourself out.
For instance, let's say the stock div is priced at $4 and you have shares at $20.
You get 100 shrs @ $4 = $400 income.
You sell 25 shrs @ $4 with a basis of $20 = 25 x -$16/shr = -$400.
You've offset your div income by selling only 25 shares.
You could also use GainsKeeper and let it do the record keeping and preparing the Sch D. Forget what they call it but it amounts to selecting lots for close to minimize the gain or maximize the loss.
It is well worth the cost in the time saving.
Just to explain further, a taxpayer should use a "first in first out" method of applying basis to shares sold (ie the first shares purchased are the first shares sold), unless the taxpayer can prove specific identification of the shares sold. This can be done when selling shares by instructing the broker to sell certain shares that you purchased on a certain date, which the broker should document in their records. This specific selection method may be acceptable to the IRS if done electronically as well (ie if you have electronic access to your account history and can electronically select the shares being sold).
This subtle difference of how the "basis" adjustment will work vs the example of adding the new basis to all the shares is that since most people have different basis in different share lots that they own (assuming they bought at different times), it gives them an opportunity to use "specific identification" when selling shares. That is, a taxpayer can specifically identify which shares are being sold if only part of the shares held are being sold. So, a taxpayer has an opportunity to select higher basis shares, or long term shares for example if using this method of computing gain or loss on sale.
If I am reading these right, Ribi1's explanation, along with yours, would result in the same result if all shares were sold at once. The two interpretations would make a difference only if some of the shares were sold.
Ribi1's explanation looks to be a bit easier to handle accounting wise, just treat the previous shares the same, and treat new shares the same as a purchase, with the declared stock dividend amount as the cost basis.
That is a fascinating distinction. IF I were IRS writing the rule on that one I would make people average over all shares. Otherwise you give the shareholder a means of timing income and losses that is not as favorable from the position of the taxing authority.
Actually what happens is that the basis of the shares received in the dividend have a basis equal to the amount of the dividend (ie the taxable amount). The other shares owned have no adjustment to their basis. In other words, the basis increase that results from the stock dividend only affects the new shares received. I did not look this up but I am reasonably certain this is how it will work.
If anyone researches this and comes up with a different result, let us know.