Fri, Oct 31, 2014, 12:06 AM EDT - U.S. Markets open in 9 hrs 24 mins

Recent

% | $
Quotes you view appear here for quick access.

Eagle Rock Energy Partners, L.P. Message Board

  • lizahuang54321 lizahuang54321 Jun 9, 2010 2:26 AM Flag

    tax implication of selling rights

    Is there any difference in tax implications between exercising the rights versus selling the rights and using the proceeds to purchase EROC stock (the latter allowing me to purchase more stock instead of getting warrants)?

    I think if I simply exercise the rights there should be no tax implication at this time. I would just get additional stock/warrants which will impact my cost basis. But no extra tax to pay this year (except for K-1 allocation of income from the additional units).

    But what about if I sell the rights? What would I have to declare as cost basis for the sale? It wouldn't seem fair to have a cost basis of zero as that would imply the entire sale would be a capital gain. Could the cost basis be declared as equal to the proceeds (ie. no gain or loss) and then leave my cost basis in EROC units unchanged? How would that impact the cost basis adjustments reported on my K-1?

    Bottom-line: not sure if I want to bother with the warrants, would rather have just stock. So I'm considering selling the rights and using the proceeds to purchase EROC units. But before doing so I want to understand if there is a worse tax implication in doing so versus simply exericising the rights.

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • Actually, I don't think that's the case, but I could be wrong, do you have a cite?

      Based on tax law I know (former tax professional), the basis in EROC units at the time of the issuance of the rights would have been split by relative FMV of the two securities on the day of the issuance of the rights, because the value of the rights on the issuance date was greater than 15% of the value of the corresponding shares (Regs. Sec. 1.307-2). At the exercise of the rights, that portion of the original basis plus $2.50 would be further allocated to units and warrants based on the relative FMV of the day of issuance.

      Accordingly, if one let the rights expire, one would have a loss equal to the original basis allocated to the rights.

    • The tax basis of the rights will be your pre-issuance basis split in proportion to the value of the securities on the day of issuance. You're really not going to know that until the K-1 package next year, where presumably EROC will provide numbers, but for now use 20% of your 12-31-09 basis and you won't be too far wrong.

 
EROC
3.44+0.13(+3.93%)Oct 30 4:00 PMEDT

Trending Tickers

i
Trending Tickers features significant U.S. stocks showing the most dramatic increase in user interest in Yahoo Finance in the previous hour over historic norms. The list is limited to those equities which trade at least 100,000 shares on an average day and have a market cap of more than $300 million.
GoPro, Inc.
NasdaqGSThu, Oct 30, 2014 4:00 PM EDT
Visa Inc.
NYSEThu, Oct 30, 2014 4:00 PM EDT