Mergers can be structured in multiple ways. How a merger is entered in the accounting software vary with the structure of the merger. The simplest version is a merger structured as an acquisition. In this type of merger shareholders of the non-surviving company generally receive only cash. It is in essence a sale of the company to the surviving company. Entering this merger type is usually best done as a sale of the company for the amount of cash received.
Reorganization type mergers also have multiple variations. If the shareholders of the non-surviving company only receive shares of the surviving company the transaction is generally a non-taxable transaction. The Merger transaction in the software is used for these types of transactions. The cost basis and holding period of the old shares is transferred to the shares received in the merger. The most complex mergers occur when cash and stock are part of the merger consideration. These mergers can be taxable or partially taxable events. The fully taxable version is treated as a sale of the non-surviving company for the total value of the cash and stock received in the merger. The new shares are considered to be bought for their fair market value on the merger date. The partially-taxable version calculates the gain recognized in the merger by looking at the difference between the total value of cash and stock received to the cost basis of the non-surviving company. Loss is not allowed in this type of merger. The gain is limited to the cash received as part of the merger. The cost basis of the new shares is the cost basis of the original shares minus the cash received. To this difference is added back any gain recognized. This is done on a block by block basis.
The partially-taxable merger with cash and stock received is more difficult to enter in the desktop version of the accounting software. The gain calculations must be done by hand. Up to four separate transactions may be needed to enter a partially-taxable merger with cash and stock. Users of the myiclub.com accounting platform are luckier. A Merger with cash transaction was added to the online program to make entering all types of mergers involving cash and stock much easier. It involves just one 2-step transaction entry. Be careful to be sure to choose the correct radio button designating whether the transaction is fully taxable or only taxable to the extent of cash received. The software will then do all the appropriate gain calculations, cost basis and holding period adjustments.