How to avoid taxes when a merger brings a windfall
Q My father-in-law owns a sizable number of shares of a company which will soon be bought out by another company. The buyout includes half cash and half stock. He has owned the shares a long time and there is potential for a large capital-gains tax. Is there any way to minimize these taxes?
A "Your father-in-law should soon be receiving a letter from the acquiring company spelling out the tax treatment regarding the takeover," says Gary Schatsky, an attorney and fee-only financial planner here.
"Presumably," he says, "the acquiring company will structure the takeover in such a way as to carry over part of the existing gain to the new shares. If they do not send such a letter, contact them directly."
The gain on the cash portion will definitely be subject to a long-term capital gains tax. If your father-in-law does not want to pay it, Mr. Schatsky says, he could always give the stock to a charity now, and receive a tax deduction without having to pay the tax on the gain.
He could also give the stock to someone in a lower tax bracket, such as his children or grandchildren. The amount of the gifting would be deducted from the "unified tax credit" that is available to him on the total value of his estate.
Q Can you name some companies that are employee-owned? V.M., Jupiter, Fla.
A Companies that are over 50 percent employee-owned include United Airlines, Publix Supermarkets, and Edward Jones Co., a discount brokerage. For a list of employee-owned firms, contact the The National Center for Employee Ownership in Oakland, Calif. at (510) 272-9461, or go to their Web site: www.nceo.org/library/eo100.html
Q I would like to know three mutual funds that invest in northern Italy.
D.S., via e-mail
A Chicago-based information firm Morningstar lists ItalyWEBS Index Series (800-810-9327), Icon South Europe Fund (800-828-4881), and First Eagle International Fund (800-451-3623). Remember that fund portfolios constantly change. First Eagle, for example, dropped from an Italy exposure of around 25 percent in late 1999 to about 8 percent this year.
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