How do I deal with a 1099B showing proceeds but no basis for the residual fraction after conversion of DuPont stock to DOWDuPONT?

[MichaelDC · Accepted solution]

You'll enter your own calculation of the basis. Included is relevant info along with an example for the sale of fractional shares in the DuPont Merger.

The holding period is long term. Use the "Stocks, Mutual Funds, Bonds, Other" interview and tell TurboTax that a 1099-B was received.

Please feel free to post any additional details or questions in the comment section.

"A DuPont shareholder who receives cash in lieu of a fractional share of DowDuPont common stock in the DuPont Merger should generally be treated as having received a fractional share of DowDuPont common stock in the DuPont Merger and then having sold such fractional share for cash. The taxable gain or loss that you recognize with respect to any cash you receive in lieu of fractional shares is equal to the difference between the amount of cash you receive and your tax basis (determined as described below) in such fractional shares of DowDuPont common stock.

Tax Basis. Your aggregate tax basis in the DowDuPont common stock received in the DuPont merger (including fractional shares of DowDuPont common stock settled in cash) should be the same as the aggregate tax basis of the DuPont common stock surrendered in exchange therefor and should be allocated pro rata across the shares of DowDuPont common stock received such that each share of DowDuPont common stock received should have an identical, averaged basis, under Section 358(a) of the Code and Treas. Reg. §1.358-2(b)(2).

DuPont shareholders who are treated as having received a fractional share of DowDuPont common stock in the DuPont Merger and then having sold such fractional share for cash should determine their tax basis in the fractional shares sold by allocating their aggregate tax basis in the DuPont common stock surrendered in exchange for the DowDuPont common stock between the whole shares and the fractional shares based on the relative fair market values.

As an example, assume a DuPont shareholder has an aggregate $100 basis in 50 shares of DuPont stock (i.e., $2 per share), and the fair market value of one share of DowDuPont stock is $66.65. Following the DuPont Merger, the DuPont shareholder should have an aggregate $100 basis in 64.1 shares of DowDuPont stock (i.e., 50 shares x 1.2820, or $1.56 per share), and should be treated as having sold 0.1 shares of DowDuPont stock with a tax basis of $0.156 (i.e., $1.56 x 0.1 shares) for $6.67 (i.e., $66.65 per share fair market value x 0.1 shares)."

http://s21.q4cdn.com/813101928/files/doc_downloads/DowDuPont_Merger/Letter-to-Shareholders-final-9-1...

[hbl3973]

The statement that the "holding period is long term" needs qualification as it is only true when the original stock being converted was long term.  Otherwise, as the quoted merger document stated, the fractional share needs to be split between long and short term on a pro rata basis, i.e. divvy up the fractional share into pieces proportional to the ratio of any given purchase to the total shares being converted.

As one who has maintained spreadsheets of dividend reinvestment accounts holdings for decades through mergers and spinoffs, this is quite a headache and I've seen that the various financial institutions are reported the results in conflicting ways, some using FIFO others using LIFO.  I've written my congressperson to see about introducing legislation to make one of those alternatives, say LIFO, the lawful reporting method.  This year it is especially painful as I consolidated several DRIP accounts into a brokerage account and all had fractional shares sold in the process.  My 1099-B forms aren't showing double entries, one for long term and one for short term, hence the 8949 reporting will have a ton of "O" codes and an explanatory attachment for how the proceeds and basis splits were handled.  Sigh.

[fanfare]

It's a lot easier to file your 1099-B as is. The dollar amounts involved must be pretty much negligible for a fractional share.