I think I have it right, but just to confirm: At the end of the merger transactions, BRY holders get shares of LNCO, and therefore do not get pulled into receiving K-1s and the associated tax reporting issues - right? Thanks in advance..
The only issue you'll need to be aware of is that LNCO's dividends are tax deferred until you sell the shares. You will receive a 1099, not a K-1, but you will need to keep track of your dividends and shares if you plan to keep them long term.
For example, suppose you own 100 shares of BRY and after the takeover you will receive 125 shares f LNCO. For simplicity, assume the shares of LNCO at the time of the takeover are $40, meaning you'd get the equivalnet of $50 for your BRY shares, or $5000.
The first year (2013) you will receive $1.50/share (almost) for each share you own in dividends, or $187.
Your basis in the LNCO shares is reduced by that amount, to $4813. (You will need to calculate your own basis for any BRY shares you own, and figure accordingly.)
Investor relations at LNCO earlier this week stated after merger is completed the cash distribution will be mostly if not all an ordinary dividend which is taxable. In past years the cash dividend has been ROC (return of capital) which is tax deferred as you correctly explained.. Yes, unit holders get a 1099.
Forgive me, but I am confused. I currently own BRY as the result of it being "merged" with LNCO, which is is desired target. I, however, have never owned a tax deferred dividend payor, however, and cannot interpret your example to make any sense to me.
If I were to own 200 BRY shares at a $10,000 cost, would my cost decrease to (10000-(1.5x200)=) $9,700 post-merger? If so, how exactly do I keep track of this reduction OR does my brokerage (fidelity) include it in the year-end statements?
I plan on holding my shares long-term; perhaps forever. Still, if the accounting of the shares/dividends is tricky, then I will likely sell once the merger is complete but before the first combined company dividend is recorded in July.