I followed up with Investor Relations with your question. The response was:
My opinion is that your cost basis (and the related adjustments to that basis historically) should carry over and become the basis of your new units in KMP. So I am not certain that you will need to report even any adjustments currently.
My take: In the end, you can probably handle it any way you want as long as you keep your records straight and pay Uncle Sam at the end of the day, when you sell your converted KMP units.
" In the end, you can probably handle it any way you want "
Not with an MLP. Your capital account is maintained by the MLP and shown on the K-1 every year.
And when you sell, you are given basis adjustments (to your original buy price) and ordinary gain.
There is really no scope for you to interpret anything or do things the way you want. You have to use the numbers from the K-1.
Bottom line will be that the merger will not be a taxable event. And your capital account will carry over from CPNO to KMP. You are not going to get a brand new topped up capital account if that's what people were hoping.
I just asked investor relations if we were going to receive a Final K-1 for CPNO. Their response was:
It is anticipated at this time that Copano unitholders will receive both a “Final” Copano K-1 (for the period 1/1/13 through closing) and a Kinder K-1 (for the period of closing through 12/31/13.) This will be discussed in more detail in the Form S-4 merger documents that both parties will be filing with the SEC in the coming weeks.
I believe that this means that we will need to declare the adjusted basis. I do not believe that this would require us to declare capital gains or losses until the converted KMP shares are sold.