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Technology Stocks : 3Com Corporation (COMS)
COMS 0.001300.0%Nov 7 11:47 AM EST
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To: Danny who wrote (39296)2/15/2000 10:40:00 AM
From: David E. Taylor  Read Replies (1) of 45548
 
Danny:

I need to revise my previous answer to your Q slightly. While the PALM shares you get on D-Day will not cost you any out of pocket $$ (i.e. they will be "free" in that sense), they will of course have a cost basis for tax purposes. The original basis of your "old" COMS will be apportioned between your "new" COMS and your PALM according to a formula that should be part of the private letter ruling 3-Com has requested from the IRS (which will not be available prior to IPO date).

So your PALM will have a "cost" for tax purposes. If you're holding COMS in a tax free account, that will be irrelevant, but it's certainly a consideration if you're holding COMS in a taxable account, particularly if on D-Day, you will have been holding your COMS longer than a year. If that's the case, both the COMS and PALM will qualify for long term capital gains tax at the 20% rate, rather than short term gains taxed at ordinary income rates.

Just another wrinkle in the "what to do before D-Day" decision making, since if you sell prior to D-day and you've been holding the COMS less than a year, the tax bite will be maybe twice as much as if you wait until after D-day until the 12 month anniversary comes up. In my case, I have a chunk of COMS bought in August last year for which this could be an important consideration. Nice problem to have though if everything holds together over the next few months.

David T.
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