LAZ

What are the tax implications for investors holding the redeemed notes?

Created August 06, 2025 at 07:49 PM

Tax implications for investors who held the redeemed 3.625 % Senior Notes due 1 Mar 2027

When Lazard, Inc. completed the cash‑tender offer and redeemed the outstanding notes, the transaction is treated for tax purposes in the same way as a sale or exchange of a debt security. Below is a step‑by‑step outline of the key tax consequences that most holders will face in the United States. The specifics can vary depending on the investor’s own tax situation (e.g., individual vs. corporate, resident vs. non‑resident, and the type of account the notes were held in), but the general principles are the same for all.

1. Determining the Taxable Event

Redemption = taxable disposition – The cash payment you received in exchange for the notes is a “realization” event. The IRS treats it as a sale of a capital asset (the note) for the amount of cash you actually received.
The event is reported in the tax year 2025 (the year the tender offer expired and the redemption was completed), even though the cash may be received a few days later.

2. What Income Must Be Recognized?

Tax Item	How it is treated
Cash redemption amount (the price paid per note)	Capital gain or loss = Cash received – Adjusted tax basis of the note.
Accrued interest (interest that accrued up to the redemption date)	Ordinary taxable interest (reported on Form 1099‑INT). This is not part of the capital gain/loss calculation; it is taxed as ordinary income in the year received.
Original Issue Discount (OID) that was previously amortized	The portion of OID that you have already amortized is treated as ordinary interest that has already been taxed. Any remaining OID that is “earned” at redemption is added to the capital gain (see § 1275 of the Internal Revenue Code).
Premium or discount on the note (price paid at purchase vs. face value)	The premium (if you bought the note above face value) is amortized over the life of the note and reduces the capital gain at redemption. A discount (if you bought below face value) is amortized as OID and is treated as ordinary interest; the un‑amortized portion is added to the capital gain at redemption.

3. Calculating the Capital Gain or Loss

Determine your adjusted basis:
- Original purchase price of the note.
- Add any premium paid (if the note was bought at a premium).
- Subtract any OID that has been amortized to date (the amount you have already treated as ordinary interest).
- Adjust for any reinvested accrued interest that was capitalized (if you elected to capitalize interest instead of taking it as cash).
Subtract the adjusted basis from the cash redemption price (the amount Lazard paid per note).
- Positive result = Capital gain (short‑ or long‑term depending on holding period).
- Negative result = Capital loss (subject to the usual $3,000 net‑loss limitation for individuals).
Holding period:
- Long‑term capital gain if you held the note more than 12 months.
- Short‑term capital gain (taxed at ordinary rates) if held 12 months or less.

4. Reporting the Transaction

Form	Where it is reported
Form 1099‑INT (or 1099‑DIV if you held the notes in a brokerage account)	Issued by the paying agent (Lazard) for the cash interest you received up to the redemption date.
Form 8949 – Sales and Other Dispositions of Capital Assets	List the redemption as a “sale” of the note. Include: date acquired, date sold (redemption), proceeds (cash redemption), adjusted basis, and resulting gain/loss.
Schedule D – Capital Gains and Losses	Totals from Form 8949 flow here. Long‑term vs. short‑term gains are distinguished.
Schedule B – Interest and Ordinary Dividends	Report the accrued interest received (ordinary interest).
Form 1040 – Main tax return	Gains, losses, and interest flow into the appropriate lines.

If the notes were held in a *tax‑advantaged account** (e.g., an IRA, 401(k), or a municipal bond fund that is exempt from federal tax), the above reporting may be suppressed or deferred. The redemption would be treated as a distribution from the account, with its own tax rules.*

5. Special Situations & Additional Considerations

Situation	Tax consequence
Non‑resident alien investors	Generally subject to 30 % withholding on the cash redemption (unless a treaty reduces the rate). The redemption is treated as a portfolio‑interest dividend for treaty purposes.
Corporate holders	The redemption is a capital transaction; gains are taxed at the corporate tax rate, and interest is ordinary income.
State and local taxes	Most states follow the federal treatment of capital gains and interest, but some (e.g., New York) have additional filing requirements for “portfolio‑interest” income.
Section 1275 “original issue discount” – If the note was issued at a discount and you have not amortized the OID, the unamortized OID is added to the capital gain at redemption.
Wash‑sale rules	If you sold a substantially identical note within 30 days before or after the redemption, the loss may be disallowed under wash‑sale rules.
Net‑investment‑income tax (NIIT)	High‑income individuals (modified adjusted gross income > $200,000 for single filers) may owe the 3.8 % NIIT on net investment income, which includes capital gains and interest from the notes.
Alternative Minimum Tax (AMT)	Capital gains from the redemption are not an AMT preference item, but large amounts of interest could affect the AMT calculation indirectly.

6. Practical Example (illustrative)

Item	Example numbers
Face value of note	$1,000
Purchase price (original)	$950 (discount)
OID amortized to date	$30 (taxed as ordinary interest)
Accrued interest paid at redemption	$25
Cash redemption price	$1,000 (par)
Adjusted basis	$950 – $30 = $920
Capital gain	$1,000 – $920 = $80 (long‑term if held >12 mo)
Ordinary interest	$25 (reported on Schedule B) + $30 OID already taxed

The $80 gain would be reported on Form 8949 and Schedule D as a long‑term capital gain, taxed at 0 %, 15 % or 20 % depending on the investor’s taxable income. The $25 interest is ordinary taxable income.

7. Bottom‑Line Checklist for Investors

Locate the redemption statement from Lazard (or your broker) showing the cash amount and accrued interest.
Identify your original purchase price and any premium/discount, plus any OID already amortized.
Calculate the adjusted basis and the resulting capital gain or loss.
Determine the holding period to know whether the gain is short‑ or long‑term.
Report accrued interest as ordinary income (Schedule B).
Report the redemption on Form 8949 and Schedule D for capital gains/losses.
Check for any withholding (especially for non‑resident investors) and ensure the correct amount is credited to your tax account.
Consider state tax obligations and any NIIT or AMT implications if you are a high‑income taxpayer.

9. Sources & Tax Authority References

Internal Revenue Code §§ 1001, 1012, 1275 – basis and OID rules.
IRS Publication 550 – “Investment Income and Expenses” (covers capital gains, OID, and interest).
IRS Publication 538 – “Corporate Tax Returns” (for corporate holders).
IRS Publication 519 – “U.S. Tax Guide for Aliens” (non‑resident treatment).
Form 8949 Instructions – detailed reporting of debt‑security sales.

10. When to Seek Professional Advice

If you held a large position (e.g., > $10,000) and the redemption generates a sizable capital gain.
If you are a non‑resident alien or a foreign entity.
If the notes were held in a tax‑advantaged account and you need to understand distribution rules.
If you have complex basis issues (e.g., multiple purchases at different prices, reinvested interest, or prior partial redemptions).

A qualified tax professional can help you reconcile the basis, ensure proper amortization of OID, and avoid inadvertent under‑ or over‑reporting.

TL;DR (quick take‑away)

Redemption = sale → cash received minus adjusted basis = capital gain/loss (short‑ or long‑term).
Accrued interest is ordinary taxable income.
Discount/premium and OID affect the basis and the amount of gain.
Report on Form 8949/Schedule D (gain) and Schedule B (interest).
High‑income taxpayers may also owe the NIIT on the net investment income.

By following the steps above, investors can accurately determine the tax impact of the Lazard note redemption and comply with U.S. tax filing requirements.