Spin Off


A

alle

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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P

Phil Marti

alle said:
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?
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.
 
Last edited by a moderator:
J

joetaxpayer

alle said:
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?
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
 
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B

bono9763

alle said:
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?
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.
 
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M

MyVeryOwnSelf

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?
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.
 
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A

Andrew

joetaxpayer said:
...
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;
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

<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ------------------------------------------------------- >>
 
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M

MyVeryOwnSelf

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?
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.)

<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ------------------------------------------------------- >>
 
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J

joetaxpayer

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?
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

<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ------------------------------------------------------- >>
 

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