WHAT ARE THE EXPECTED U.S. FEDERAL INCOME TAX CONSEQUENCES TO A CNXM PUBLIC UNITHOLDER AS A RESULT OF THE MERGER?
The receipt of CNX Resources Corporation (“CNX”) Common Stock in exchange for CNXM Public Units pursuant to the Merger should be a taxable transaction to U.S. Holders (as defined in the section titled “Material U.S. Federal Income Tax Consequences” in the definitive proxy statement filed by CNXM with the SEC on August 28, 2020) for U.S. federal income tax purposes. In such case, a U.S. Holder will generally recognize capital gain or loss on the receipt of CNX Common Stock in exchange for CNXM Public Units. However, a portion of this gain or loss, which portion could be substantial, will be separately computed and taxed as ordinary income or loss to the extent attributable to assets giving rise to depreciation recapture or other “unrealized receivables” or to “inventory items” owned by CNXM and its subsidiaries. Passive losses that were not deductible by a U.S. Holder in prior taxable periods because they exceeded a U.S. Holder’s share of CNXM’s income may become available to offset a portion of the gain recognized by such U.S. Holder. See the section titled “Material U.S. Federal Income Tax Consequences” in the definitive proxy statement filed by CNXM with the SEC on August 28, 2020 for a more complete discussion of certain U.S. federal income tax consequences of the Merger.
You will not be able to calculate your actual, final tax gain or loss from this transaction until you receive your final Schedule K-1 and supporting materials (expected to be delivered in March 2021). Prior to that time, you can estimate your gain or loss from the transaction through the following process. This calculation is an estimate only.
- Calculate your estimated consideration received in the transaction by multiplying the number of CNXM Units you own by 0.88 to estimate the number of shares of CNX Common Stock you will receive. Multiply the number of shares by the closing price of shares of CNX Common Stock in effect at the time the Merger closed on September 28, 2020, $10.38 per share, to determine the estimated “sales price.”
- Next, calculate your adjusted tax basis in CNXM Public Units.
- You can currently obtain an estimated adjusted basis in your units from your 2019 K-1. Increase this amount by your share of certain items related to business interest that are not yet deductible due to applicable limitations and reduce this amount by the distributions you have received in 2020. (Note that the 2019 K-1 will not include your portion of 2020 partnership income or loss nor your 2020 distributions received. You will not be able to perform the final calculation until March 2021, when you receive your 2020 K-1. Note in the final calculation, you can use the adjusted basis on your 2020 K-1, which will include the impact of your share of the partnership income or loss allocated to you in 2020 as well as distributions given to you in 2020.)
- Please consult your tax advisor for help in determining your tax basis.
- Next, calculate your gain or loss by subtracting your estimated adjusted tax basis in CNXM Public Units from your consideration received in the transaction or “sales price.”
- Once you have estimated your gain or loss on the transaction, consider the impact of the passive activity loss limitation rules. Any ordinary gain generated from the transaction may be reduced by any passive loss carryforwards, to the extent such passive loss carryforwards are available.
The tax consequences of the transaction to each CNXM unitholder will be unique and depend on the CNXM unitholder's particular facts and circumstances. You should consult your own tax advisor to determine the specific consequences to you of the transaction, including under the laws of any applicable federal, state, local or foreign jurisdiction, and under any applicable U.S. federal laws other than those pertaining to income taxes.
WHAT ARE THE EXPECTED STATE INCOME TAX CONSEQUENCES TO THE CNXM UNITHOLDERS RESULTING FROM THE TRANSACTION AND HOW WILL THE TRANSACTION AFFECT THEIR STATE TAXES?
The taxable transaction should have state income tax consequences in the various jurisdictions in which we conduct business or own property or in which a CNXM unitholder is a resident. Your most recent Schedule K-1 will report state apportionment factors to help estimate your state income tax impact. You should consult your own tax advisor to determine the specific consequences to you of the transaction.
WHAT ARE THE EXPECTED U.S. FEDERAL INCOME TAX CONSEQUENCES TO THE CNX STOCKHOLDERS RESULTING FROM THE TRANSACTIONS AND HOW WILL THE TRANSACTION AFFECT THEIR TAXES?
The transaction will not have any tax consequences for CNX stockholders that do not own any CNXM Units.
WHAT TAX DOCUMENTS WILL I RECEIVE AFTER THE CLOSE OF THE TRANSACTION? WHEN SHOULD I EXPECT TO RECEIVE A K-1?
CNXM unitholders: CNXM unitholders will receive a final Schedule K-1 and supporting materials (expected to be delivered in March 2021). CNXM unitholders should also receive a Form 1099-B from their broker.
CNX stockholders: You will not receive any tax documents as a result of the transaction.
WHAT IS MY TAX BASIS IN MY NEW SHARES OF CNX?
A U.S. Holder’s tax basis in any shares of CNX Common Stock received in the transaction should equal the closing price of shares of CNX Common Stock on the NYSE in effect at the time the Merger closed, September 28, 2020. The Merger closed at 8:00am EDT before market opened, thus the closing price of shares of CNX Common Stock on September 25, 2020 was $10.38. A U.S. Holder’s holding period for any shares of CNX Common Stock received in the transaction begins September 29, 2020.
WHAT CONSIDERATION DID I RECEIVE FOR MY CNXM UNITS?
In general, holders of CNXM Units received 0.88 shares (the “Exchange Ratio”) of CNX Common Stock for each CNXM Unit. In addition, instead of issuing fractional shares of CNX Common Stock, all fractional shares of CNX Common Stock to which a CNXM Public Unitholder would otherwise have been entitled to receive was aggregated and the resulting fraction was rounded up to the nearest whole share of CNX Common Stock.
WHAT HAPPENS TO DISTRIBUTIONS WITH RESPECT TO CNXM PUBLIC UNITS?
All outstanding CNXM Public Units were converted into CNX Common Stock at the Exchange Ratio and will no longer receive quarterly distributions from CNXM. For a description of the differences between the rights of holders of CNX Common Stock and holders of CNXM Units, please read the section titled “Comparison of Rights of CNX Stockholders and CNXM Unitholders” in the definitive proxy statement filed by CNXM with the SEC on August 28, 2020.
WHAT ARE THE EXPECTED U.S. FEDERAL INCOME TAX CONSEQUENCES FOR A CNXM PUBLIC UNITHOLDER OF THE OWNERSHIP OF SHARES OF CNX COMMON STOCK AFTER THE MERGER IS COMPLETED?
CNX is classified as a corporation for U.S. federal income tax purposes, and thus, CNX (and not its stockholders) is subject to U.S. federal income tax on its taxable income. A distribution of cash by CNX to a stockholder who is a U.S. Holder (as defined in the section titled “Material U.S. Federal Income Tax Consequences”) will generally be included in such U.S. Holder’s income as ordinary dividend income to the extent of CNX’s current or accumulated “earnings and profits” as determined under U.S. federal income tax principles. Any portion of the cash distributed to CNX stockholders by CNX after the Merger that exceeds CNX’s current and accumulated earnings and profits will be treated as a non-taxable return of capital reducing a U.S. Holder’s adjusted tax basis in such U.S. Holder’s shares of CNX Common Stock and, to the extent the distribution exceeds such stockholder’s adjusted tax basis, as capital gain from the sale or exchange of such shares of CNX Common Stock. See the section titled “Material U.S. Federal Income Tax Consequences” in the definitive proxy statement filed by CNXM with the SEC on August 28, 2020 for a more complete discussion of certain U.S. federal income tax consequences of owning and disposing of shares of CNX Common Stock received in the Merger.
WHERE CAN I FIND MORE INFORMATION ABOUT THE MERGER?
The definitive proxy statement filed by CNXM with the SEC on August 28, 2020 provides detailed information about the Merger and may be accessed on the SEC website.
WILL A FORM 8937, REPORT OF ORGANIZATIONAL ACTIONS AFFECTING BASIS OF SECURITIES, BE FILED AS A RESULT OF THIS TRANSACTION?
An IRS Form 8937 is required when an organizational action affects the basis of holders of a security or holders of a class of the security, which includes a share of stock in a corporation but not a unit in a partnership. Accordingly, we do not intend to file a Form 8937 as a result of this transaction.
WILL CNX PERSONNEL BE ABLE TO HELP WITH MY TAX-RELATED QUESTIONS?
CNX’s investor relations department is not staffed by tax personnel and CNX personnel do not provide tax advice. If you have tax-related questions, please contact a tax advisor familiar with partnership taxation and specifically the taxation of partnership unitholders.
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