How to report this strange divident (FRO)

Question

Looking through my 1099-B, I strangely found that I supposedly sold a stock, which I never recalled purchasing in the first place. This stock was SFL. Upon further research, I believe what I've discovered is that a stock that I did own (FRO) apparently pays "dividends" by spinning off shares of SFL to account holders (I believe SFL is a subsidiary of FRO). The other strange thing is, the shares of SFL seem to be automatically sold and the cash deposited into my account (none of my statement show that I hold any positions in SFL).

So it seems this "dividend" is reported on my 1099-B rather than my

1099-DIV. Do I treat this as a stock sale, or as a dividend? If the brokerage reports this gain on my 1099-B, I would assume I have no choice but to report it as a stock sale, since then my numbers won't match up with what was reported to the IRS.

DF2 · Accepted Answer

I would have expected that you would end up holding SFL and that you would have only had sale of fractional shares (CIL -- Cash In Lieu). If your broker is selling the whole thing, yes they would be sales (as would CIL), and you would allocate the basis thru some means. That would typically be allocated by using the prices of the two stocks the next day. The open, closing, or average of high-low work.

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has some info. It lookslike the latest spinoff was in March 2007. They are nice enough toprovide some prices you might use in allocating basis.

PeterL · Answer

These spinoffs are a headache. I don't know why the spinoff was sold immediately. But you need to go back and reconstruct the spinoff parameters. You need to find out how many shares of the spinoff stock you get per share of the "mother" company you own. This way you may get a different cost basis for the "mother" stock. This information should be available from your broker. Then you need to find out why the spinoff was sold immediately.

How to report this strange divident (FRO)

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