M&A Legal & Tax Checklist for Investors When a Company Goes Private

When a Company Goes Private: A Practical M&A Legal & Tax Checklist for Investors

Hook: You held a stock that suddenly gets an all-cash buyout. The price jumps, your broker posts a trade confirmation, and your inbox fills with corporate press releases and a tender/merger packet — but what should you do next for taxes and record-keeping? Missing a step can mean wrong tax reporting, unwanted withholding, or worse, an audit flag.

This guide is a focused, practical checklist for retail investors, DIY filers, and tax preparers dealing with a company going private via a cash deal in 2026. It zeroes in on the tax outcomes, 1099 reporting, capital gains treatment, withholding risks, and the exact documents you must retain after closing.

Why this matters now (2026 context)

Regulatory and reporting changes through 2024–2026 increased broker cost-basis compliance and IRS scrutiny on M&A transactions. Brokers now report more tax lots and cost-basis detail to the IRS, and the agency has prioritized buyout and roll-up transactions in recent audit drives. That makes accurate documentation and conscious lot selection more important than ever.

Top-line rule: Cash buyout = taxable sale for most retail shareholders

In an all-cash going-private transaction, most retail shareholders will realize a taxable disposition of stock — comparable to selling your shares on the open market. The payment you receive minus your adjusted cost basis equals your capital gain or loss. How that gain is taxed depends on your holding period: short-term (one year or less) taxed as ordinary income; long-term (over one year) taxed at capital gains rates.

Immediate actions the day the deal is announced

• Read the proxy/tender materials and press release. Confirm whether the offer is a tender offer, a merger, or a squeeze-out — the tax mechanics differ slightly by structure and timing.
• Check whether the deal is all-cash or includes stock or contingent consideration. This checklist focuses on all-cash deals; stock or mixed deals can trigger rollover rules or nonrecognition treatment in limited circumstances.
• Lock in your tax lot strategy. If you have multiple lots, decide which lots you want to tender or leave — the lot you sell impacts long/short-term treatment and basis. Communicate your lot selection to your broker before the tender deadline.
• Confirm tax forms on file (W-9 / W-8BEN). Make sure your broker has a current W-9 (U.S. taxpayer) or W-8BEN (nonresident) to avoid unnecessary backup withholding.
• Contact your tax advisor if you hold employer securities (options, RSUs, ESPP). These are often taxed differently in a cash-out (see the dedicated section below).

Checklist at closing: what to expect and verify

When the deal closes, you’ll receive transaction confirmations and later a broker 1099. Verify the following immediately after settlement:

• Settlement confirmation: Confirms the number of shares cashed out, price per share, gross proceeds, and settlement date. Save this electronic or paper confirmation.
• Brokerage cash posting: Ensure net proceeds post match the confirmation (less fees and any withholding).
• Withholding checks: Verify whether any amounts were withheld at source (backup withholding for missing TINs; other withholdings for vendor or jurisdictional reasons).
• Tax lot and basis reported to you: Brokers will often supply a provisional cost-basis and identify the tax lots sold. If the basis looks wrong, raise it with the broker immediately — corrections are easier sooner than later.

Example: Calculating your capital gain

Quick example to make this concrete:

• Shares cashed out: 1,000
• Cash per share: $2.22
• Gross proceeds: $2,220
• Adjusted cost basis (your purchase lot): $1,000
• Capital gain = $2,220 − $1,000 = $1,220

If you held the lot over a year, the $1,220 is a long-term capital gain; if not, it’s short-term and taxed at ordinary income rates.

1099-B and other tax forms: what you'll receive and when

Expect 1099-B and possibly other forms for the tax year in which the transaction settled.

• Form 1099-B (Brokerage): Reports proceeds, date of sale, cost basis (if the broker has it), and any adjustment codes. Brokers usually issue 1099-B in the first quarter following the tax year — dates vary; check your brokerage portal.
• Form 1099-MISC / 1099-NEC: Rare for sales of stock, but possible if you received special cash consideration reported as other income.
• W-2: If you received cash in lieu of vested RSUs or as compensation, your employer may include amounts in W-2 wages.
• Form 3921 / 3922: If you exercised an ISO or purchased under ESPP around the corporate transaction, these forms may apply and affect reporting.

When broker basis is wrong: how to fix it

Brokers increasingly report basis to the IRS, but they sometimes get it wrong — especially for inherited shares, gifted lots, or shares with corporate actions. If the 1099-B basis is incorrect:

• Do not simply accept it; you are responsible for correct reporting.
• Request corrected 1099-B from the broker. Document your communications.
• If you file before a corrected 1099 arrives, report the correct numbers on Form 8949 and attach supporting calculations; you may need to check box on Schedule D that you reported adjustments.

Withholding risks and what triggers them

Three withholding situations to watch for:

1. Backup withholding (U.S. taxpayers): If the IRS notifies the broker that your taxpayer identification number (TIN) is invalid or you failed to certify your TIN on a Form W-9, the current backup withholding rate is 24%. That amount may be withheld from sale proceeds until the issue is resolved.
2. Withholding for foreign persons: For nonresident aliens, most capital gains from stock sales are not subject to U.S. tax unless effectively connected with a U.S. trade or business, or unless the asset is a U.S. real property interest (FIRPTA). However, brokers may still withhold pending documentation (W-8 series). Provide the proper W-8 to your broker to avoid unnecessary withholding.
3. State-level concerns: Some states require estimated payments or have rules that can increase withholding if you are a nonresident. Check state tax guidance or ask your broker if state withholding will apply.

Special situations: options, RSUs, ESPP and employee shareholders

If you hold compensation-origin securities, the cash-out often triggers mixed tax treatment:

• Restricted Stock Units (RSUs): Cash received for vested RSUs typically is treated as wages and reported on your W-2; unvested RSUs cashed out may be taxable as compensation depending on the plan and agreement. Employers sometimes gross-up or withhold payroll taxes at closing.
• Stock options (ISOs/NSOs): Cash received in exchange for unexercised options may be taxable differently. ISOs disposed of in a disqualifying disposition can create ordinary income on exercise spread and affect AMT history. NSOs typically trigger ordinary income for the difference.
• Employee Stock Purchase Plan (ESPP): The discount and disposition rules can create ordinary income and capital gains components; timing matters if the sale meets or fails the qualifying disposition tests.

Action: obtain your plan administrator’s closing memo and ask for a transaction statement that breaks down ordinary income vs capital gain components.

Record retention: exactly what to keep (and how long)

At minimum retain the following documents for each going-private cash transaction:

• Settlement/trade confirmations and monthly statements showing the trade, price, and proceeds.
• Broker 1099-B and any corrected 1099s.
• Original trade confirmations and order tickets if you selected tax lots.
• Proxy statement, merger agreement, tender offer documents and the company’s press release explaining the transaction structure.
• Plan documents for options/RSUs/ESPP plus correspondence from the plan administrator.
• Records of gifts, inheritances, or splits that affected cost basis.
• Proof of W-9 / W-8BEN submission to your broker, if applicable.

How long? Keep documentation at least until the statute of limitations for that tax year expires. In practice, retain records for a minimum of 7 years for complex securities and compensation-related transactions to cover extended-lookback windows and possible IRS inquiries.

Filing: where these items land on your tax return

• Form 8949: Report each sale with the correct proceeds, cost basis, acquisition and sale dates, and any adjustments. If your broker reported basis to the IRS and the 1099-B box indicates basis reported, you still must reconcile any differences.
• Schedule D: Total your capital gains and losses from Form 8949 and transfer to Schedule D.
• Form 1040, Line items: Report ordinary income items from compensation on your W-2 as usual, and pay attention to Box 1 and Box 12 codes if the employer reported components related to a cash-out.
• Estimated tax payments: If the cash-out creates a large tax bill, make or increase estimated tax payments to avoid underpayment penalties. Use safe-harbor rules (pay 90% of current year tax or 100/110% of prior year tax depending on AGI) to plan.

Advanced tax planning opportunities (if you have time before closing)

• Tax-loss harvesting: If you hold other positions with unrealized losses, harvest them to offset gains from the cash-out.
• Gifting or donating shares: If appreciated shares are donated to a qualified charity before the deal closes, you may avoid capital gains and get a charitable deduction, subject to AGI limits.
• Partial tender by lot: Tender low-basis lots first (if you want to realize gains) or tender high-basis lots to reduce gain; coordinate with your broker.
• Roth/IRA considerations: If securities are in a retirement account, sales generate no immediate tax but may trigger different retirement tax considerations.

Common pitfalls and how to avoid them

• Acceptance of incorrect basis: Don't assume broker basis is right. Retain purchase records and challenge mistakes early.
• Missing W-9/W-8: Ensure your tax forms are current with the broker to avoid backup withholding or unnecessary foreign withholding.
• Ignoring vesting/compensation effects: Employee shareholders often get surprised by tax withheld as wages; read plan notices and ask HR or payroll for a breakdown.
• Timing mistakes: Confirmation settlement date determines tax year — know whether sale falls in this tax year or next.

Non-U.S. investors: quick notes

Nonresident aliens should provide a correct W-8BEN/W-8BEN-E to their brokerage. Most capital gains on U.S. stock sales are not subject to U.S. federal tax for nonresidents, but exceptions (e.g., U.S. real property interests under FIRPTA) exist. Also assess tax rules in your country of residence: many jurisdictions tax worldwide gains or have treaty provisions. Maintain documentation proving your nonresident status and the transaction details to resolve any future inquiries.

Post-closing checklist: 10 actions to take within 30–90 days

1. Save the trade confirmation and a screenshot of the cash posting.
2. Download and archive the company’s tender/merger materials and press releases.
3. Verify broker-provided tax lots and cost basis; request corrections if wrong.
4. Confirm no unexpected backup withholding occurred; if it did, resolve with broker and IRS.
5. Collect any paystub or W-2 detail for compensation-related components.
6. Record any state tax notices or withholding requirements.
7. If you’ll owe tax, make estimated payments to avoid penalties.
8. Consolidate all transaction documents in a secure folder (digital + backup).
9. Plan for reporting on Form 8949 and Schedule D; flag for your tax preparer.
10. If you used lot-level elections, archive broker communications that confirm your selection.

2026 trends investors should watch after going-private waves

• More granular broker reporting: Brokers are expanding covered securities and tax-lot reporting; expect more pre-populated 1099-Bs but also more corrections.
• IRS focus on corporate rollups and private equity buyouts: Audit programs continue to target M&A structures that generate deferred income or disguised compensation.
• Automation and APIs: Newer broker APIs and tax software integrations (2025–26 growth) make it easier to import 1099-Bs and reconcile basis — but double-check auto-imported figures.

When to call a specialist

Talk to a CPA or tax attorney if any of the following apply:

• Complex compensation instruments involved (ISOs, NSOs, RSUs, ESPP).
• Cross-border status or FATCA questions.
• Large-dollar transactions that could trigger AMT, huge state tax exposure, or estimated tax issues.
• Broker refuses to correct clearly erroneous basis reporting.

Quick takeaway: Treat a going-private cash-out as a sale — confirm your basis, check withholding, secure the 1099-B, and preserve all merger/tender documentation. With brokers reporting more detail in 2026, being proactive now saves headaches at tax time.

Final action checklist (one-page summary)

• Confirm deal structure and whether it’s all-cash.
• Update W-9/W-8 with broker immediately.
• Decide and communicate tax-lot elections before tender.
• Save settlement confirmations, proxy statements and corporate communications.
• Monitor for withholding and request corrections promptly.
• Wait for 1099-B; reconcile with your records and file Form 8949 & Schedule D correctly.
• Make estimated tax payments if the gain creates significant tax liability.
• Consult a tax pro for options/RSUs, nonresident issues, or high-value dispositions.

Closing note — protect your tax position

Going-private cash deals can feel like an unexpected windfall, but the tax mechanics are straightforward if you follow a checklist: confirm the structure, secure correct cost basis, watch for withholding, and retain full documentation. With enhanced reporting and IRS attention in 2026, the best defense is good paperwork and pre-emptive communication with your broker and tax advisor.

Call to action: Save this checklist now — download or print your copy, verify your W-9/W-8 with your broker, and if you’ve already been cashed out, gather your trade confirmations today. If you want a personalized review, schedule a consultation with a CPA who specializes in M&A tax for retail investors.

Disclaimer: This article provides general information and does not constitute legal or tax advice. Consult a qualified tax professional for guidance tailored to your situation.

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