Pier 1 2009 Annual Report Download - page 126

THE PARTICULAR TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT TO SUCH
HOLDER.
For purposes of the discussion below, a ‘‘U.S. Holder’’ is a beneficial owner of shares of Pier 1
Imports’ common stock that for U.S. federal income tax purposes is: (i) an individual citizen or
resident of the United States; (ii) a corporation (including any entity treated as a corporation for U.S.
federal income tax purposes) created or organized in or under the laws of the United States, any state
or political subdivision thereof; (iii) an estate the income of which is subject to U.S. federal income
taxation regardless of its source; or (iv) a trust, the administration of which is subject to the primary
supervision of a U.S. court and as to which one or more U.S. persons have the authority to control all
substantial decisions of the trust, or that has a valid election in effect to be treated as a U.S. person. A
‘‘Non-U.S. Holder’’ is a beneficial owner (other than a partnership) of shares of Pier 1 Imports’
common stock who is not a U.S. Holder.
U.S. Holders
The reverse stock split should constitute a ‘‘recapitalization’’ for U.S. federal income tax purposes.
As a result, a U.S. Holder generally should not recognize gain or loss upon the reverse stock split,
except with respect to cash received in lieu of a fractional share of Pier 1 Imports’ common stock, as
discussed below. A U.S. Holder’s aggregate tax basis in the shares of Pier 1 Imports’ common stock
received pursuant to the reverse stock split should equal the aggregate tax basis of the shares of Pier 1
Imports’ common stock surrendered (excluding any portion of such basis that is allocated to any
fractional share of Pier 1 Imports’ common stock), and such U.S. Holder’s holding period in the shares
of Pier 1 Imports’ common stock received should include the holding period in the shares of Pier 1
Imports’ common stock surrendered. Treasury regulations promulgated under the Code provide
detailed rules for allocating the tax basis and holding period of the shares of Pier 1 Imports’ common
stock surrendered to the shares of Pier 1 Imports’ common stock received pursuant to the reverse stock
split. Holders of shares of Pier 1 Imports’ common stock acquired on different dates and at different
prices should consult their tax advisors regarding the allocation of the tax basis and holding period of
such shares.
A U.S. Holder who receives cash in lieu of a fractional share of Pier 1 Imports’ common stock
pursuant to the reverse stock split should recognize capital gain or loss in an amount equal to the
difference between the amount of cash received and the U.S. Holder’s tax basis in the shares of Pier 1
Imports’ common stock surrendered that is allocated to such fractional share of Pier 1 Imports’
common stock. Such capital gain or loss should be long term capital gain or loss if the U.S. Holder’s
holding period for Pier 1 Imports’ common stock surrendered exceeded one year at the Effective Time.
Information Reporting and Backup Withholding. Information returns generally will be required to
be filed with the IRS with respect to the receipt of cash in lieu of a fractional share of Pier 1 Imports’
common stock pursuant to the reverse stock split in the case of certain U.S. Holders. In addition, U.S.
Holders may be subject to a backup withholding tax (at the current applicable rate of 28%) on the
payment of such cash if they do not provide their taxpayer identification numbers in the manner
required or otherwise fail to comply with applicable backup withholding tax rules. Backup withholding
is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or
allowed as a credit against the U.S. Holder’s federal income tax liability, if any, provided the required
information is timely furnished to the IRS.
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