The AMC reverse stock split and APE conversion were structured as non-taxable exchanges for federal income tax purposes: your cost basis carries over from your old AMC shares and your APE units into the new consolidated common stock, and no gain or loss is recognized on the share consolidation or the conversion itself. The one piece that is taxable is any cash-in-lieu payment you received for a fractional share. The litigation settlement shares AMC issued a few days later are treated as a tax-free stock distribution, but they do force you to reallocate basis across more shares. That is where most of the tax-time confusion lives.
What Happened, and When
Three separate corporate actions hit in quick succession, and each one affects basis differently.
At 12:01 a.m. Eastern on August 24, 2023, AMC’s 1-for-10 reverse stock split took effect. Every ten pre-split shares of Class A common stock became one new share, and AMC common began trading on a split-adjusted basis on the NYSE that day. August 24 was also the last trading day for the AMC Preferred Equity Units (APEs) and the record date for the litigation settlement.1U.S. Securities and Exchange Commission. Prospectus Supplement Dated August 24, 2023
On August 25, 2023, all outstanding APE units converted into Class A common stock. Because the reverse split had already adjusted the common share count, the APE conversion rate was adjusted too: each APE unit converted into one-tenth of a new common share. In practice, 100 APEs became 10 new shares of common stock.2SECURITIES AND EXCHANGE COMMISSION. Form 8-K Current Report
Distribution of the settlement shares began on or around August 28, 2023. Holders of record of Class A common stock at the close of business on August 24 received one additional share for every 7.5 post-split shares held, with roughly 6.9 million shares issued in aggregate.1U.S. Securities and Exchange Commission. Prospectus Supplement Dated August 24, 2023
The Reverse Split Is Not a Taxable Event
Consolidating ten old AMC shares into one new AMC share is an exchange of common stock for common stock in the same corporation. Under Section 1036 of the Internal Revenue Code, no gain or loss is recognized on that kind of exchange.3Office of the Law Revision Counsel. 26 USC 1036 – Stock for Stock of Same Corporation
Your total dollar basis in the AMC common position does not change. It just gets divided across fewer shares. If you paid $10,000 for 1,000 pre-split shares, you now hold 100 post-split shares with the same $10,000 aggregate basis, or $100 per share. Your holding period from the original purchase carries over as well.
The APE Conversion Is Also Non-Taxable
AMC’s prospectus took the position that holders “generally will not recognize gain or loss upon the conversion of the AMC Preferred Equity Units into Class A common stock,” and that the basis and holding period of the converted APEs would carry over to the new common shares received.4SEC.gov. 424B5 Prospectus Supplement Dated September 26, 2022
The complication is that your APE units already had a cost basis of their own, and it usually wasn’t zero. When AMC distributed the APEs as a special dividend in August 2022, the tax rule for stock distributions required you to split your original AMC cost basis between the AMC shares you already owned and the newly received APE units, based on their relative fair market values on the distribution date. So if you received APEs as a dividend, some portion of your original AMC basis had already moved over to the APEs in 2022. That is the basis that now carries into your new common shares from the 2023 conversion.
Whether your brokerage actually made that 2022 allocation correctly is a separate question, and it is worth checking before you rely on the 1099-B.
Settlement Shares: No Income, but Reallocate Basis
AMC stated in its SEC filing that it believes the settlement share payment qualifies as a tax-free stock distribution under Section 305(a) of the Internal Revenue Code, which generally excludes stock distributions from gross income.2SECURITIES AND EXCHANGE COMMISSION. Form 8-K Current Report
Under that treatment, you do not report income when the settlement shares hit your account. Instead, your existing aggregate cost basis is spread across both your original post-split shares and the new settlement shares, based on their relative fair market values on the distribution date. No new basis is created; the same total dollars just cover more shares, which lowers your per-share basis.
Cash-in-Lieu Is the Taxable Piece
The 1-for-10 ratio produced fractional shares for anyone whose pre-split holding wasn’t evenly divisible by ten, and the 1-for-7.5 settlement ratio produced more fractional shares on top of that. Brokerages generally can’t hold fractional shares from corporate actions, so the transfer agent sold the fractions on the open market and sent cash to the shareholder.
The IRS treats a cash-in-lieu payment as proceeds from a sale of the fractional share. You calculate a capital gain or loss by subtracting the portion of your cost basis allocable to that fraction from the cash you received.5IRS. Stocks, Options, Splits, Traders – Question 7 Whether the gain or loss is short-term or long-term depends on how long you held the underlying shares before the restructuring. Report it on Form 8949 and carry the result to Schedule D.
If you held AMC in more than one brokerage account, you may have received a separate CIL payment from each, and each one is its own small sale to report.
Working Through Your Cost Basis
The full basis calculation for someone who held AMC common stock through the whole sequence involves several allocation steps. Taken in order:
- APE dividend (August 2022). When you received APE units as a special dividend, your original AMC cost basis was split between your AMC shares and your new APE units based on their relative market values on the distribution date. Part of your original AMC basis moved to the APEs at that time.
- Reverse split (August 24, 2023). Your AMC common shares were consolidated 10-to-1. The aggregate basis remaining with your AMC common doesn’t change; the per-share basis is multiplied by 10.
- APE conversion (August 25, 2023). Your APE units became new common shares (10 APEs per new share). The basis that had been sitting on the APEs since 2022 now attaches to these new common shares.
- Settlement shares (on or about August 28, 2023). You received one additional share for every 7.5 post-split shares held. No new basis is created; existing basis is reallocated across all your shares based on relative fair market values on the distribution date.
- Cash-in-lieu, if any. Subtract the proportional basis from the CIL proceeds to determine your taxable gain or loss, and report it on Form 8949.
If Your 1099-B Looks Wrong
Brokerage firms were responsible for adjusting account records through this restructuring, but the layered nature of the transaction meant many firms reported cost basis incorrectly, especially for the 2022 APE allocation and the settlement share reallocation. A 1099-B is not the last word.
If your brokerage’s numbers don’t match what you calculate, you can report a corrected basis on Form 8949 using column (e) for cost basis and column (g) for a basis adjustment, with code “B” to indicate the reported basis was incorrect. For larger positions or lots bought at different prices, a tax professional is usually worth the cost, because the errors tend to compound across the steps rather than cancel out.