Taxable Merger

A taxable merger is a merger where the gains/losses are realized and will be taxed. These are handled differently than non-taxable mergers which can be done though our Merger/Exchange Wizard. Currently, Morningstar Office does not have a way of handling more than one account at a time for taxable mergers.

Steps for entering a taxable merger into Morningstar Office:

  1. Delete any transactions that may have been sent by the custodian for the merger. These transactions will not create the appropriate gains/losses.

  2. Go to the account on the custodian's Web site and view the Realized Gain/Loss information.

  3. Find the original security from the merger and take note of the Total/Net Proceeds. You do not need to make a note of each lot.

  4. Find the new security from the merger and take note of the Quantity and the Total/Net Proceeds. (This will be fractional shares and the cash-in-lieu.)

  5. Review the transactions for the merger on the custodian Web site as well. Take note of the shares of the original security, shares of the new security, cash that was received from the merger (if it's a security and cash merger), and the date the merger took place.

  6. In Morningstar Office, open the client's account and create a new transaction for the original security.

    1. Transaction Type will be Sell.

    2. Choose By Share and Amount.

    3. The Trade Date should be the date the merger took place.

    4. Enter the shares of the original security.

    5. The Principal Amount should be the Total/Net Proceeds of the original security.

    6. Make sure the Cash Security Name is set to the default cash for your custodian.

    7. Post the transaction to the account.

  7. Create a new transaction for the new security.

    1. Transaction Type will be Buy.

    2. Choose By Share and Amount.

    3. The Trade Date should be the date the merger took place.

    4. Enter the shares of the new security including the fractional shares.

    5. The Principal Amount should be the Total/Net Proceeds of the original security minus the amount that was received as cash from the merger.  Note: If no cash was received from the merger (i.e. Security only merger) the amount will only be the Total/Net Proceeds of the original security.

    6. Make sure the Cash Security Name is set to the default cash for your custodian.

    7. Post the transaction to the account.

  8. Create a new transaction for the new security.

    1. Transaction Type will be Sell.

    2. Choose By Share and Amount.

    3. The Trade Date should be the date the merger took place.

    4. Enter the fractional shares only in the Shares field.

    5. The Principal Amount should be the Total/Net Proceeds of the fractional shares (cash-in-lieu amount).

    6. Make sure the Cash Security Name is set to the default cash for your custodian.

    7. Post the transaction to the account.

  9. You can verify that the cost basis is correct by comparing Morningstar's Realized and Unrealized Gain/Loss reports to the custodian's information.