Without knowing the actual companies involved - which can go a long way to a succinct and easy to understand answer - I can only give you the general guidelines.
When a company spins off another company the requirement is that you split your original basis in the "old" company between the "old" and "new" company based on the relative market value of your holdings of the two companies, (including any fractional shares that were issued and then sold via a cash in lieu action), immediately after he spin off. So you might take the closing price of the two stocks on the day of the spin off, multiply the price by the number of shares held in the two companies, and then split that original basis between the two stocks based on their relative value.
The holding period in the new company carries over from the old company. So if you've held the old company long enough for it to be classified as a long term holding, then the holding period for the new company is also long term.
The sales categories are:
- A - short term/basis reported to IRS
- B - short term/basis not reported to IRS
- D - long term/basis reported to IRS
- E - long term/basis not reported to the IRS
(There's also a "C" for short term holdings when NO 1099-B is issued and a "D" for long term holdings when NO 1099-B is issued.)
Tom Young
