How should I handle a stock acquired by spinoff?
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From: R. C. White on 7 Jul 2010 21:54 Hi, Caryl. Your misunderstanding is a common one - and natural. And Fidelity's use of zero basis makes sense in their case because they don't have correct information; that's about all they could do. And when they allocate zero between VZ and FTR, they'll calculate zero for both of them. ;^} > R. C., I am confused about FMV. Where does one find these figures? When I was in practice as a public accountant specializing in taxes, one of my standard lines was that the only place we would find "fair" in the Internal Revenue Code was in "Fair Market Value" - and nobody could agree what that is. :^{ FMV is a matter of opinion, and everybody may have a different opinion. The definition is "the price at which the property would change hands between a willing buyer and a willing seller, with both having knowledge of the facts and neither being compelled to act". For securities listed on a stock market, we have evidence nearly every day as to the RANGE of FMV, but a stock can change at different prices within that range all day long. For convenience, we generally regard the day's Close as the FMV of the stock on that day. But the IRS uses a more complex formula (that I never memorized) involving the average of the high and low for the day. For a spin-off, the code specifies the fair market value immediately after the transaction. We can't use the value before the spin-off because FTR did not exist at that time. The Open prices the next morning might be the most useful values. Fortunately, the companies have armies of tax lawyers and accountants they they generally produce an announcement within a few days after the spin-off stating their determination of FMV, and if we use those values, we are not likely to get an argument from anybody. Note that we can't just do a simple allocation unless we have a simple 1-to-1 exchange ratio. The VZ shareholders received "approximately" 0.24 shares of FTR for each share of VZ held; the actual formula was one share of FTR for each 4.165977 shares of VZ, which calculates to about 0.2400397, which means that a holder of 1,000 VZ would receive 240 whole shares of FTR plus a check for the value of about .04 share. The arithmetic of the spin-off would require the shareholder to allocate the original VZ basis among the 1,000 VZ and the 240.04 FTR. Then he would need to divide the total FTR share of the basis by 240.04 to get the basis-per-share of his new FTR holdings. (The total VZ recalculated basis would be divided by 1,000, of course.) Then he must report the sale of the .04 share; the selling price would be the amount of the check he received and the cost would be the calculated basis of .04 share. (At today's close of $7.15, that check would be about 29 cents.) Fortunately, once we plug the 0.24004 into Quicken's wizard, most of this should be calculated for us. RC -- R. C. White, CPA San Marcos, TX rc(a)grandecom.net Microsoft Windows MVP Windows Live Mail 2010 (15.3.2804.0607) in Win7 Ultimate x64) "Caryl" wrote in message news:4e91e0fd-b15b-4b41-ab00-4726b7ad95b4(a)u7g2000yqm.googlegroups.com... On Jul 7, 5:37 pm, "R. C. White" <r...(a)grandecom.net> wrote: > Use Quicken's Corporate Securities Spin-off transaction wizard to record > this. No, this was not a gift and your cost basis is NOT zero. Keith, I am sorry that I gave you the wrong information about this and am glad that R. C. corrected me. I had said to use "Add Shares" because that is what was used when Quicken's One Step Update added the Frontier shares. I am now changing it to a Corporate Securities Spin- off transaction. >Your former > cost basis in Verizon is now allocated between your VZ, which you still > have, and the new FTR shares. > > The wizard works well for most such spin-offs - with one important caveat: > It asks for "cost" of the old and new shares. But THAT is what Quicken > will > be calculating, based on information you supply. What you must enter is > not > "cost", but FMV (Fair Market Value) of the VZ and FTR shares immediately > after the spin-off. Those FMVs should be available from Verizon very > soon, > if not already. R. C., I am confused about FMV. Where does one find these figures? I think the Fidelity must have the cost basis for Frontier as 0 in its records because they also have the cost basis of Verizon as 0. This is because the Verizon stock was not bought through them but was given to them to be put into our account at a later period. Therefore, they do not have the cost. (Quicken does have the cost, so if and when I sell VZ I have it.) Caryl
From: R. C. White on 7 Jul 2010 21:56 Hi, Keith. You are welcome, of course. See the Reply to Caryl that I just posted. You didn't say if you have 1 share of VZ or a million, but the wizard should handle the calculations either way. ;<) RC -- R. C. White, CPA San Marcos, TX rc(a)grandecom.net Microsoft Windows MVP Windows Live Mail 2010 (15.3.2804.0607) in Win7 Ultimate x64) "Keith Snyder" wrote in message news:hv7Zn.17031$f_3.11336(a)newsfe17.iad... Thank you very much. I had a vague understanding that VZ cost basis is reduced by the amount of the spinoff, and I was going to go from there, treating the cost of FTR on 7/2 sort of like a Return of Capital for VZ. Instead I'll go looking for the spinoff wizard. Again, thank you. "R. C. White" <rc(a)grandecom.net> wrote in message news:kqedncJheqY1bqnRnZ2dnUVZ_sCdnZ2d(a)posted.grandecom... > Hi, Keith. > > Use Quicken's Corporate Securities Spin-off transaction wizard to record > this. No, this was not a gift and your cost basis is NOT zero. Your > former cost basis in Verizon is now allocated between your VZ, which you > still have, and the new FTR shares. If you were entitled to a fractional > share, that was sold immediately and you received cash. Record this cash > received as a sale of the fractional share, using its newly-computed basis > as its cost, and showing its acquisition date as the date when you > acquired the Verizon shares. > > The wizard works well for most such spin-offs - with one important caveat: > It asks for "cost" of the old and new shares. But THAT is what Quicken > will be calculating, based on information you supply. What you must enter > is not "cost", but FMV (Fair Market Value) of the VZ and FTR shares > immediately after the spin-off. Those FMVs should be available from > Verizon very soon, if not already. > > Test Quicken's allocation by comparing your total basis of VZ + FTR now > with your pre-spin-off cost of VZ. The only difference should be the cost > of the fractional share. > > Verizon doesn't make it easy to navigate their site, but I eventually > found this page, which spells out the complicated transaction (in 443 > pages of dense prose which, of course, I have not read!). > http://investor.verizon.com/sec/frontier/Verizon%20Frontier%20Information%20Statement.pdf > > A one-paragraph version is in Investor News at > http://investor.verizon.com/news/view.aspx?NewsID=1062 > > This page, dated July 1, 2010, says in part: > > "Verizon stockholders are receiving one share of Frontier common stock for > every 4.165977 shares of Verizon common stock they owned as of June 7, > 2010. > This is equivalent to approximately 0.24 shares of Frontier common stock > for > each share of Verizon common stock owned as of June 7, 2010. Verizon > stockholders are receiving cash in lieu of any fraction of a share of > Frontier common stock." > > I've been retired for nearly 20 years, Keith, and the rules may have > changed, so be sure to check with your own CPA to be sure that this is > still the correct treatment. > > RC > > "Keith Snyder" wrote in message news:k1%Yn.8242$Hw.5790(a)newsfe10.iad... > > Verizon sold its wired communications to Frontier Communcations (FTR). As > a > result, suddenly as > of 7/2 I own 0.24 shares of FTP. > > How do I enter this transaction in my Q2010 investment register(s).? I > want > to show cost basis I think, > but this is not purchased stock, nor a gift. How on earth do I account for > it?
From: Andrew on 8 Jul 2010 07:58 FWIW, in the Tax Forum NG, there's a discussion about cost basis, and one of the posters suggested this new site: www.costbasis.com , In the spinoffs section (http://www.costbasis.com/stockchanges/spinoffs.html), there's a line indicating a recent entry: "Frontier Comunications (FTR) simultaneous spinoff/merger from Verizon (VZ)". Although I didn't go there, supposedly there's a calculator on this site that is pre-filled in with information on this specific transaction. (PS: Since they can't get the spelling of 'Communications' correct (in the directly cut/pasted text above), already I'm a little concerned about their accuracy!) -- ------------------------------------------------------------- Regards - - Andrew
From: R. C. White on 8 Jul 2010 08:47 Hi, Andrew. Thanks for that link! I had seen the site mentioned somewhere but had not checked on it. A quick look makes me optimistic that it will be very useful to many investors. The calculator for FTR looks right (and they spelled Communications correctly on the drop-down list). They might need to provide more decimal precision, especially for large shareholdings. I plugged in sample numbers of 1,000 shares of VZ purchased 1/10/10 for $20,000, then clicked Submit; the answers looked right to me. ;<) The home page for http://www.costbasis.com/ offers help for several other kinds of cost basis questions, such as for inherited stock, mergers and others. While I haven't checked out any but the Spinoff page, this should be a very useful site for many investors, including many who post such questions here. Thanks again, Andrew. RC -- R. C. White, CPA San Marcos, TX (Retired. No longer licensed to practice public accounting.) rc(a)grandecom.net Microsoft Windows MVP (Using Quicken Deluxe 2010 and Windows Live Mail in Win7 x64) "Andrew" wrote in message news:4c35bd58$0$4994$607ed4bc(a)cv.net... FWIW, in the Tax Forum NG, there's a discussion about cost basis, and one of the posters suggested this new site: www.costbasis.com , In the spinoffs section (http://www.costbasis.com/stockchanges/spinoffs.html), there's a line indicating a recent entry: "Frontier Comunications (FTR) simultaneous spinoff/merger from Verizon (VZ)". Although I didn't go there, supposedly there's a calculator on this site that is pre-filled in with information on this specific transaction. (PS: Since they can't get the spelling of 'Communications' correct (in the directly cut/pasted text above), already I'm a little concerned about their accuracy!) -- ------------------------------------------------------------- Regards - - Andrew
From: Keith Snyder on 8 Jul 2010 09:03 It's 395 shares of VZ. There were two lots with fractional differences because Fidelity routed the purchase through NYSE and their own broker. And it's 94 shares of FTR. But I can't find the spinoff wizard! I'm using Quicken 2010, and I can't find it! How do I get to the wizard? BTW, I really appreciate the better understanding you give me. I'm also using GnuCash, which is not user friendly. In GnuCash I will have to do the whole thing manually. "R. C. White" <rc(a)grandecom.net> wrote in message news:F4-dndLu_s_PrajRnZ2dnUVZ_t-dnZ2d(a)posted.grandecom... > Hi, Keith. > > You are welcome, of course. > > See the Reply to Caryl that I just posted. You didn't say if you have 1 > share of VZ or a million, but the wizard should handle the calculations > either way. ;<) > > RC > -- > R. C. White, CPA > San Marcos, TX > rc(a)grandecom.net > Microsoft Windows MVP > Windows Live Mail 2010 (15.3.2804.0607) in Win7 Ultimate x64) > > "Keith Snyder" wrote in message > news:hv7Zn.17031$f_3.11336(a)newsfe17.iad... > > Thank you very much. I had a vague understanding that VZ cost basis is > reduced by the > amount of the spinoff, and I was going to go from there, treating the cost > of FTR on 7/2 > sort of like a Return of Capital for VZ. Instead I'll go looking for the > spinoff wizard. > > Again, thank you. > > "R. C. White" <rc(a)grandecom.net> wrote in message > news:kqedncJheqY1bqnRnZ2dnUVZ_sCdnZ2d(a)posted.grandecom... >> Hi, Keith. >> >> Use Quicken's Corporate Securities Spin-off transaction wizard to record >> this. No, this was not a gift and your cost basis is NOT zero. Your >> former cost basis in Verizon is now allocated between your VZ, which you >> still have, and the new FTR shares. If you were entitled to a fractional >> share, that was sold immediately and you received cash. Record this cash >> received as a sale of the fractional share, using its newly-computed >> basis as its cost, and showing its acquisition date as the date when you >> acquired the Verizon shares. >> >> The wizard works well for most such spin-offs - with one important >> caveat: It asks for "cost" of the old and new shares. But THAT is what >> Quicken will be calculating, based on information you supply. What you >> must enter is not "cost", but FMV (Fair Market Value) of the VZ and FTR >> shares immediately after the spin-off. Those FMVs should be available >> from Verizon very soon, if not already. >> >> Test Quicken's allocation by comparing your total basis of VZ + FTR now >> with your pre-spin-off cost of VZ. The only difference should be the >> cost of the fractional share. >> >> Verizon doesn't make it easy to navigate their site, but I eventually >> found this page, which spells out the complicated transaction (in 443 >> pages of dense prose which, of course, I have not read!). >> http://investor.verizon.com/sec/frontier/Verizon%20Frontier%20Information%20Statement.pdf >> >> A one-paragraph version is in Investor News at >> http://investor.verizon.com/news/view.aspx?NewsID=1062 >> >> This page, dated July 1, 2010, says in part: >> >> "Verizon stockholders are receiving one share of Frontier common stock >> for >> every 4.165977 shares of Verizon common stock they owned as of June 7, >> 2010. >> This is equivalent to approximately 0.24 shares of Frontier common stock >> for >> each share of Verizon common stock owned as of June 7, 2010. Verizon >> stockholders are receiving cash in lieu of any fraction of a share of >> Frontier common stock." >> >> I've been retired for nearly 20 years, Keith, and the rules may have >> changed, so be sure to check with your own CPA to be sure that this is >> still the correct treatment. >> >> RC >> >> "Keith Snyder" wrote in message news:k1%Yn.8242$Hw.5790(a)newsfe10.iad... >> >> Verizon sold its wired communications to Frontier Communcations (FTR). As >> a >> result, suddenly as >> of 7/2 I own 0.24 shares of FTP. >> >> How do I enter this transaction in my Q2010 investment register(s).? I >> want >> to show cost basis I think, >> but this is not purchased stock, nor a gift. How on earth do I account >> for >> it? >
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