The distribution of the SeattleSpinco shares, (that was the company actually spun out by HPE), to you was a non-taxable
event. 22.22% of your basis in HPE should have been allocated to
SeattleSpinco.
The SeattleSpinco/Micro Focus merger IS considered
a sale of your SeattleSpinco stock and the "Proceeds" of the sale is
the FMV of the Micro Focus ADR's you received. But there's a wrinkle
here: while you must recognize gain on lots where you have a gain you
cannot recognize a loss on lots where you actually do have a loss.
Netting of gains and losses is not permitted. So you'll have to make
your calculations on a lot-by-lot basis. If you have a gain, you simply
subtract that lot's basis. If you have a loss you set your associated
basis equal to the "proceeds" so that you report $0 gain/loss.
This is all sorta explained in the Micro Focus Form 8937 here
https://investors.microfocus.com/media/1438/micro-focus-form-8937-10317.pdf
and you should read it. That will also help you understand what your basis in the resulting lots of Micro Focus will be.
The Form 8937 suggests that the appropriate "fair market value" to use for the "proceeds" calculation is $29.34.
Tom Young
