How to determine basis on spinoff, which is non-covered Cash in lieu of fractional shares? Original stock was in DRIP program.

How to Report Cash in Lieu of Fractional Shares

1. The IRS considers cash for a fractional share to be money received as the result of a stock sale.
2. This transaction must be reported on IRS tax form Schedule D Capital Gains and Losses. 
3. The date of the sale (when cash was received) and the date of the original stock purchase is needed to complete the tax form.

Tax Basis Example:  Assume a shareholder has an aggregate $100 basis in 50 shares of ABC stock ($2 per share), and the fair market value of one share of ABC stock is $66.65. Following the ABC Merger, the shareholder should have an aggregate $100 basis in 64.1 shares of ABC stock (50 shares x 1.2820, or $1.56 per share), and should be treated as having sold 0.1 shares of ABC stock with a tax basis of $0.156 ($1.56 x 0.1 shares) for $6.67 ($66.65 per share fair market value x 0.1 fractional shares).

 

Once you have your information you will complete the entry in TurboTax using the following steps.

1. Open (continue) your return if it isn't already open.
2. In TurboTax, search (upper right) > Type 1099b > Press enter > then select the Jump to.... link (refresh your page if necessary)
3. Answer Yes to Did you sell stocks, mutual funds, bonds, or other investments in 2021?
   • If you see Here's the info we have for these investment sales, select Add More Sales.
4. Answer NO to Did you get a 1099-B or brokerage statement for these sales?  Or answer YES if you want to try to import it.
5. Follow the instructions.

 Thank you for your reply. Not sure that answers my question, because my tax basis was not zero. I had bought the EXC stock originally and through the years had paid taxes on the dividends. How could my basis be zero?  Also the new company only gave 1 (one) share for every 3 (three) shares of the old stock EXC.  I did receive

1099B for this non covered transaction whose basis I think was incorrect.

This is an alternative for calculating the spinoff as a portion of the underlying original stock.

 

1. Find the closing prices of the original stock and the spin-off stock at the end of the first trading day after the spin-off.

2.  Find the FMV of the original stock and spin-off stock at that time by multiplying the respective prices with the shares held.

3. Take the FMV of the original stock and spin-off stock and calculate the percentage that the spin-off stock is worth relative to the combined value of the original stock and spin-off stock.

4. Multiply the portion of the spin-off stock's value by the cost basis of the original stock to get the cost basis of the spin-off stock.

5. Multiply the fractional share sold by the cost basis of the spin-off stock to get the cost basis of the cash in lieu.

 

For example, If you bought the 123 shares of the original stock at $100 and received 1 share of the spin-off stock for every 10 shares of the original stock that I held. On the first day of the spin-off trading, the original stock was worth $200, and the spin-off stock was worth $75:

 

FMV of the original stock = 123 * $200 = $24600

FMV of the spin-off stock = 12.3 * $75 = $922.50

% value of the spin-off stock = $922.50 / ($24600+$922.50) = 0.0361

Cost basis of spin-off stock = 0.036 * $100 = $3.61

Cost basis of fractional share = $3.61 * 3 = $1.08

 

See original post.

Thank you. So now I see there are two ways to determine the amount I should enter as the cost basis. I was not aware that there are alternative ways to arrive at the answer. Is that the case?

Yes, you can follow the steps outlined by @DianeW777 or @JohnB5677 to determine the basis.

 

@chitowncrystal44 

Are you a Turbo Tax employee or a member of the community?

To clarify the situation, @DianeW777, @JohnB5677 and @AliciaP1 are TurboTax Experts and employees.

 

@chitowncrystal44