Stock Reorganization Fee

[Richyrich2]

My broker charged a "reorganization fee" in connection with some stock I owned. It wasn't deducted from the sales proceedings of all the stock transactions necessary to achieve the split into 3 different companies. 

How do I incorporate that cost into TURBOTAX BUSINESS? 

[VictorW9]

Investment fees are no longer deductible for 2019. It used to be deductible under schedule A as miscellaneous itemized deduction subject to 2% of AGI limit. However, investment interest expenses are sill deductible.

[Richyrich2]

VicktorW9, Thank you for your answer. I plan on following it and not pursuing deducting the fee.  However, I would think that a reorganizational fee could be added to the cost basis of the associated stock, but in my situation it would be much too complicated to do so.

[dscek]

I have the same question about stock reorganization fees. Is it really considered an investment fee or can it be added to the cost basis of the stock? I can't find any definitive answer to what would seem to be a common question. Is there any reputable source that has an answer for this question?

On the 1099-B that I received, it reported a small amount of proceeds due to a merger situation and also reported $0 for the cost basis of this. So the reorganization fee was not applied to the cost basis being reported to the IRS. But the 1099-B also states "You should review this information carefully when completing your Form 8948 and Schedule D. There may be instances where our reporting requirements will not be consistent with your particular tax accounting position or elections. For these reasons, the IRS requires us to provide you with this reminder: Taxpayers are ultimately responsible for the accuracy of their tax returns." So basically, they are saying the amounts on the 1099-B might not be right.

[DaveF1006]

Please refer to this Turbo Tax link for the correct way to enter this stock reorganization fee. This is reported as  fees, commission, or other sales expenses.  Be sure to view the screenshot at the bottom of the page.

[dscek]

The other post doesn't mention anything specifically about stock reorganization fees. Is there any reputable guidance (e.g. from IRS) that stock reorganization fees can be treated like a stock trading fee (i.e. sales expense) and added to the cost basis? The "best answer" in this thread from @VictorW9 is saying that it's considered an investment expense (that used to be conditionally deductible in Schedule A, but no longer is starting in tax year 2019). It cannot be considered both an investment expense and a sales expense.

I have the Turbotax Deluxe CD version, and when I try going thru the "uncommon situations" flow for the merger related stock sale, there is an option for the stock transaction that says "I paid sales expenses not reported by my broker. (This is not common.)". There is a link for "sales expenses" that opens a popup that states:

This includes any expenses you paid on the sale that are not already subtracted from your net proceeds (Box 1d) or added to your basis (Box 1e) and listed on Form 1099-B or substitute broker's statement. (This is not common.)

Examples of items to include here:

- Wire transfer fees

- Phone or Fax fees

- Express delivery fees

So it doesn't list stock reorganization fees in the examples (I realize this doesn't necessarily mean that it's not a valid example, but if it was listed as one, it would definitely provide clarity). Checking this option shows a new field labeled "Sales Expenses Not Reported By Broker" to enter an amount.

The main question is whether stock reorganization fees should be considered a sales expense or an investment expense, and I'm looking for guidance on this.

[DMarkM1]

Reorganization fees are the result of a company reorganization that in turn causes a brokerage house to reorganize the accounts of stockholders.  Some brokerages charge a fee and some don't.  Since the expense is charged by your brokerage for additional work they had to do in managing your account, then these are investment expenses. 

If fees are charged by the corporations to shareholders, then you would add to the basis of the shares owned. 

[dscek]

Thanks for your response. What you stated makes sense to me and I hope you're correct. I guess it falls in line with why my 1099-B didn't include reorganization fees in the cost basis. Perhaps Turbotax could help clarify this in the program's help guides as an example of something that does not qualify as a sales expense that can be added to a cost basis.

[jjccgg]

Is the stock reorganization fee deductible on Form 8960?

[GeorgeM777]

No, a stock reorganization fee is not deductible.  Investment fees, such as a stock reorganization fee, are no longer deductible.  Prior to the Tax Cut and Jobs Act, such fees were deductible under schedule A as miscellaneous itemized deduction subject to 2% of AGI limit.   Stock reorganization fees should not be confused with investment interest expenses which are sill deductible as an itemized expense.

Reorganization fees are either mandatory or voluntary.  A mandatory reorganization fee can involve a cash merger by a company, or a reverse stock split. Sometimes when there is a reorganization mandated by the issuer of your stock, you will also be charged the fee as stockholders have no choice and this reorganization is required for all outstanding shares. Other corporate actions such as dividends declared, mergers, acquisitions of other companies, stock splits, spin-offs, and rights issues, may also involve fees.  As with stock reorganization fees, the aforementioned fees are not deductible.  

In contrast to a mandatory reorganization fee, a voluntary reorganization fee allows you an option.  For example, with a voluntary tender offer, if you decline the tender offer, you will not be charged the fee; however, if you accept the tender offer you will likely be charged the reorganization fee.  
 

@jjccgg