First, if you bought "old" SGP at any high price (say above $24.81 per share), do NOT ASSUME that you will owe tax on the cash portion -- the $10.50 distributed.

You may well have a loss on your overall SGP position -- so don't leap to the conclusion that you owe tax on the cash.

It will be complicated, but you are allowed to allocate your "basis" -- generally, what you paid for old SGP -- in various ways.

First, a disclaimer -- if you owned BOTH Merck and SGP, on the day of merger, this won't work for you -- unless you acquired MRK at a VERY high price (like $35 or above). As the handout says:

". . .If you own Merck stock at the time of the transaction or you contemporaneously acquire shares of New Merck, you may be treated for U.S. federal income tax purposes as receiving ordinary dividend income equal to the full amount of cash you receive in the Schering-Plough merger. . . ."

Okay, with that out of the way, you need to allocate your basis. Under the simplest method, the cash portion (the $10.50 per share) gets allocated .4233 of your "basis". [The stock portion gets .5767 of your basis.]

So, if you originally bought SGP at exactly $24.81, .4233 of that amount equals. . . $10.50. Voila! No federal tax -- you "broke even".

If, on the other hand, you paid MORE than $24.81 for your old SGP shares, you will show a capital loss here. No tax -- possibly a deduction, if you have other capital gains in 2009.

I suspect many people here paid more than $24.81 for the old SGP shares.

Do consider this before you automatically turn over the cash to the government.

The link to the MRK explainer on all of this is:

http://www.merck.com/investors/stockhold...

Namaste