MGMT 127B Lecture Notes - Lecture 6: Retained Earnings, Treasury Stock, Preferred Stock
Document Summary
Generally: allocate basis in old stock between old and new stock based on the relative fmv"s post distribution. Receipt of a stock split is not income. Example: if you have 10 shares at and the corp gives you 10 more, then you now have /(10 + 10) = . 00/ share. Your fraction of the pie remains the same, it is just expressed by more stock certificates. All new shares also have the holding period of the original shares because they are indistinguishable. But: as to sto(cid:272)k rights, the shareholder doesn"t need to (cid:894)(cid:271)ut (cid:272)an(cid:895) allo(cid:272)ate basis to them if their fmv <15% of the old stocks fmv. If elected to allocate and rights lapse, allocated basis must be returned to old stock. Exception: taxable if one of the following applies. Shareholder could have elected to receive property instead. Some shareholders get preferred stock, some get common stock.
