I have held stock in a company for several years, and have augmented my position by participating in their Dividend Re-Investment Program (DRIP). Towards the end of 2006, they spun off another company, issuing one share of new company stock for every twenty shares of old company stock. This leads to all kinds of questions on my part.
- Since the spinoff was 1-for-20, I believe that my basis in the new company is 1/21 of my basis in the parent, and that my basis in the parent is 20/21 of its previous value. Is this correct?
- It is my understanding that the spin-off, in and of itself, is not a taxable event, any more than would be a stock split. Is this correct?
- Although the shares in the new company are book entry only, the decision was made that any fractional shares would be sold and the proceeds turned over to the shareholders. (Jerks!) Despite the answer to 2, am I right in thinking that this is a taxable event?
- Assuming that I do have to pay taxes on the roughly .00 that I got from the unwanted sale of my fractional share, what are the short-term/long-term restrictions? Can I take my basis for the new company out of the oldest shares that I have in the parent firm? This would be simple for a lot of reasons, as well as making this transaction strictly a long-term gain. Or, do I need to reduce the basis of each purchase in the parent by (1/21) and report thirty different bases in the fractional share, with some of them short-term and others long-term? Thank you,
-- Michael F. Stemper #include You can lead a horse to water, but you can't make him talk like Mr. Ed by rubbing peanut butter on his gums.