A company in which you hold stock spins off a division that is then listed on the exchange and you receive a number of shares of the spun off company. I understand that this is not a taxable event. If you now sell the shares of the new company, what is your basis and will it be short or long term gain considering that you held the old company for several years?
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We'll hope you're asking this question right after the spinoff, while you can still find the paperwork, rather than
4 days before you have to file a return for the year in which you sold the stock you acquired years ago. The time to make these adjustments to your basis records is when the spinoff happens. The answer to your question lies in the spinoff paperwork. If you can't find it, investor relations should be able to help you.-- Phil Marti Clarksburg, MD
In nearly all cases, you are given the shares as a non-taxable event. The acquisition date for all shares is kept the same as the original stock, so yes, long term. Your basis is determined by the bean counters who do the spin-off. There is no way to calculate the values from the current prices and number of shares. The company must issue a statement that will say for example; "Based on such values, 89.5% of a Motorola shareholder's aggregate tax basis in his or her shares of Motorola Common Stock prior to the Distribution should be allocated to such shareholders shares of Motorola Common Stock and 10.5% should be allocated to such shareholder's shares of Freescale Class B Common Stock (including any fractional shares of Freescale Class B Common Stock)." Of course, this was the result of MOT spinning off FSL, and the quote is from a company press release. Each share of MOT gave you .1104 shares of FSL, for what that's worth. JOE
Your holding period in the new company is the same as in the old company. The old company should have sent you something to help you calculate your basis. If not, go to their website and look under investor relations. Basically, you split your basis between the old and the new, and the ratio is determined by the value of the two stocks on the day of the spin-off. This ratio should be on their website or in the info they sent you.
The parent company typically notifies shareholders how to split the basis between the new and old shares. If you don't have the info yet, check the company's web site under "investor relations." The original holding time applies, so it's long term.
In many (most?) cases you are also given any fractional remainder shares in cash. For example, if you hold 98.987 shares in Company x, and the ratio of the old stock to new stock is 4 to 1, you'll end up with 24.746745 shares of the new company, and they'll give you the 0.746745 in cash, leaving you with a nice round 24 shares of the new company. Just for yucks, since I've never dealt with this in a taxable account, how is this cash typically handled, tax-wise? Regards -
Andrew
I've always treated it just like a tiny sale.
If the fractional share is (say) .05% of the holding, I treat it like selling .05% of the total position, and reduce the basis of the remaining shares by .05%. I report it on schedule D as "fractional share of ..." If I had bought the shares in several lots, I split the fraction so each remaining lot is an integral number of shares. (Disclaimer: I'm not a tax pro, but, as you can tell, I'm picky picky picky.)
You follow the same equation, and still calculate a 'per share' basis. You then have a transaction (for your example above) of 0.746745 shares sold for the cash in lieu, with a basis of 0.746745*(single share basis). This part of the math is pretty simple once you have the numbers from the spinoff paperwork. JOE
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