In a corporate restructuring or merger, shareholders swap shares of stock in one corporation for shares in another corporation, or a different kind of share in the same corporation. The exchange formula sometimes results in shareholders receiving cash in lieu of a fractional share of stock.
For example, if you hold 201 shares of stock in Company A, and Company B buys Company A using its own stock in a 2 – for – 1 exchange, you would exchange your 201 shares of Company A stock for 100 shares of Company B stock, and have 1 share of Company A stock left over. To avoid the administrative costs of issuing fractional shares of stock, Company B would pay you cash in lieu of a fractional share.
Treat the cash in lieu as if you had received the fractional share, then sold it. Report the sale of the fractional share on our Capital Gains and Losses Worksheet like this:
Column (a) – Description of fractional share (e.g., "1/2 Company B")
Column (b) – Date you acquired the share(s) you exchanged for a fractional share
Column (c) – Date of exchange
Column (d) – Amount of cash received
Column (e) – Basis in fractional share. This is your basis in the share(s) you would have exchanged for a fractional share. In the example above, the basis in the 1/2 share of Company B stock is the basis you had in one share of Company A stock.