February 4, 2005 11:17 AM
AT&T Investors Face Tax Headache
Excerpt: SBC Communications Inc.'s proposal to buy AT&T -- and the pending disappearance of Ma Bell as an independent company -- is making even scarier what is perhaps the ultimate tax-preparation nightmare for individual investors. The plight of AT&T shareholders underscores the remarkable complexity of doing your taxes today, particularly for investors who actively buy and sell stocks.
AT&T Corp. was once the nation's most widely held company, the epitome of a "widows and orphans" stock, with a safe, consistent income stream that inspired grandparents to bequeath their shares to loved ones.
Today, many people, especially those who have owned the stock for decades, are more likely to hold onto their shares for a different reason: They're afraid of the tax consequences.
SBC Communications Inc.'s proposal to buy AT&T -- and the pending disappearance of Ma Bell as an independent company -- is making even scarier what is perhaps the ultimate tax-preparation nightmare for individual investors. The plight of AT&T shareholders underscores the remarkable complexity of doing your taxes today, particularly for investors who actively buy and sell stocks.
It also provides an unusual roadmap of AT&T's efforts to restructure and reinvent itself, even as early at 1959, when the company announced a 3-for-1 stock split. Since the government forced it to break up in 1984, the company has undertaken a blizzard of acquisitions, spinoffs and stock splits, including costly bids into the cable TV business and wireless phone business, in order to survive cutthroat competition. Most of the new strategies resulted in new and complex transactions for shareholders.
As a result of the flurry of deals, many of the 2.7 million shareholders who own AT&T have little idea what their shares' initial value really is. In order to calculate their taxes, they must reconstruct their records and piece together the threads of AT&T's long and convoluted history to figure out what they originally paid for each share of AT&T -- a figure known as the "cost basis."
Even if investors had done nothing but hold the stock and cash dividend checks, they are likely to find themselves owning a complicated basket of securities that reflect AT&T's forays into new businesses such as cable TV. An investor who bought AT&T stock before the government broke up the Ma Bell monopoly in 1984 and held onto those shares could have owned, at one time or another, shares of 20 different companies.
Today, since some of those companies gobbled each other up or spun off their own companies, that same investor would own shares of nearly a dozen companies -- including Avaya Inc., BellSouth Corp., Lucent Technologies Inc., NCR Corp., Qwest Communications International Inc., Verizon Communications Inc., Vodafone Group PLC, Comcast Corp., Agere Systems Inc. and SBC itself. "It's a train wreck," says Chuck Carlson, who runs www.atttaxcalculator.com, a Web site that sells software that helps investors figure out their cost basis in AT&T stock. (The cost is $19.95 per tax year.)
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