title>Tax Guru-Ker$tetter Letter Wizard Animation

                 

Tax Guru-Ker$tetter Letter
Saturday, January 14, 2006
 
Stock Tender Offers

Q:

Subject: Tender Offer for Cash
 
Recently BASF announced a tender offer of $37/share in cash for Engelhard.
For a long time shareholder of the latter, this takeover can be a capital gains tax nightmare. Is there a provision in the tax law which would allow for an even exchange with no tax consequences if the proceeds were invested in BASF?

Thank you.

A:

There would be a tax free swap if BASF were to give you shares of BASF stock in exchange for your Engelhard stock.  However, if you actually receive cash, that will be a taxable event; even if you turn around and buy the BASF shares on your own.

Kerry Kerstetter


Follow-Up:

Thanks for the info; another income tax disaster when long time holders are bought out for cash; reminds me of the 1994 cash buyout of American Cyanamid by American Home Products  - another capital gains windfall for the IRS. Although I regard it as an involutary conversion the IRS would say otherwise.
 
As a side note, BASF bought the American Cyanamid division from American Home Products in 2000 for $3.8 billion in cash.
 
 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 1/14/2006 12:10:00 PM Send this post:

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