Need Help determining how to enter Cash In Lieu of Fraction shares received from a spinoff

[caroleena5]

Turbo tax is asking me to enter the cost or other basis for an amount reported as cash in lieu of fractional shares.  Can anyone help?

I imported all of my investment forms from my broker.  Turbo Tax entered info from my 1099-B as follows:

box 1a (description): 0.500 Organon & Co

box 1c (date sold): 06/03/2021

box 1b (date acquired) is not filled in

box 1d (sale proceeds): 14.91

box 1e (cost or other basis) is what it is asking from me

sale category is currently checked as box E (long term noncovered)

From my broker: 

Organon was a spin-off of Merck. The amount reported on the 1099 is the Cash In Lieu of fractional shares. We do not have your original Merck cost basis on file.

So, again, my question is how to fill in box 1e (cost or other basis).  My broker sent me an article, but it only confused me more.  Same is true for the questions/answers I found on this site as well as others.

Thanks in advance for your help!

[JohnB5677 · Accepted solution]

Basically, the entire transaction is a zero-sum event in which the total cost basis of all the shares owned after the spin-off equals your total cost basis in the shares owned before the spin-off.

The value per share of the spin-off is $14.91/0.500=$29.82.  This is not the basis.

You must get the value of the original stock at the time just before the spin-off.  I will use the example of $100.

$100 - $29.82 = $70.18.  This is the current adjusted value of the original stock.

You must have the basis of the original stock.  Example $35.

Calculate the percentage change:  $35/$100 = 0.35 (35%)

Basis of spin-off = 0.35 X $29.82 = $10.44

Since you sold 0.50 shares you would post $10.44 X 0.50 = $5.22 to the basis of the spin-off shares sold.

[caroleena5]

Thank you, JohnB5677.  I appreciate that you took the time to explain this to me.

I still don't know what to do since my broker told me they do not have my original cost basis on file, and it seems that is the only thing Turbo Tax is asking me for.

[JohnB5677 · Accepted solution]

If you know the approximate date that you acquired the original stock, you may be able to use this database to determine the price. 

Historical Stock Prices

Be sure to account for any stock splits.

Also, you can contact the customer service or HR Department of the original company 

[caroleena5]

Thank you.  Unfortunately I don't have a clue when I acquired the original stock.  I have followed my broker from Prudential to UBS to Morgan Stanley, so the basis apparently didn't transfer over.

I think at the end of the day, since it is not a large amount, I'm simply going to enter zero basis and pay the tax on the gain of $14. 91.

I really do appreciate your help, though!

[chitowncrystal44]

That's what I am about to do because this is mind boggling over $30 or $40.

[chitowncrystal44]

I have that but with DRIP plan it is further complicated. Think I'll just use the incorrect figure provided.

[GeorgeM777]

What was the name of the company that issued you a fractional share?  Sometimes when companies issue shares to shareholders after a spinoff of assets, including cash in lieu of fractional shares, they will issue guidance to their shareholders regarding how to calculate basis in light of the spinoff.  If you can provide us with this information, we may be able to better understand your tax situation.

A DRIP is a direct reinvestment of dividends and is generally done when the company pays dividends which is typically quarterly.  When shareholders elect a DRIP, their basis in the underlying stock increases in an amount equal to the dividend that is paid.    

@chitowncrystal44

[chitowncrystal44]

The new company is CEG. My broker sent me a noncovered amount for the transaction sale as a gain, but they have the original basis of my EXC stock incorrect. CEG offered one share for every 3 of EXC. The DRIP plan increases the basis of the original stock of EXC and I know the dividend amounts  per share back to the time when I opened the account in 2004. Spinoffs seem to require some special calculations.

[RobertB4444]

The total amount that you currently own in CEG is worth whatever it is worth.  No spinoff or split changes the amount that you paid into the stock.  You know your total basis if you have the DRIP going all the way back to the original purchase.  You also know the original investment.  Take the percentage that you sold, take that percentage of the basis and you're all set.  

If the basis that is shown on your 1099-B is incorrect then you should do a correcting adjustment to show the basis as it should be so that it is correct on your return and contact your broker to get them to correct the basis for future transactions.  They may also be able to correct the 1099-B you were issued for 2022.

@chitowncrystal44 

[chitowncrystal44]

Thank you. The broker will not be of any assistance. I have contacted them in the past and they always cover themselves by saying check with your tax advisor. Your answer seems to make the most sense.

[angelv17]

Still so confusing and insane how much work has to be done to obtain the information needed to correctly record this small amount of cash.

Have two lots of AT&T stock (700 & 200 shares) at $28.098750 per share inherited at my Mom's date of death of 7/24/21.

4/11/22 AT&T did a spinoff of .242 shares of AT&T total shares (900) to WBD = 217.72530 shares of WBD received.

WBD closed on 4/11/22 at $24.78/share.

New per share cost of AT&T 900 shares is $21.501171

Received $17.29 cash in lieu of the WBD fractional shares of .72530.

I know the Date acquired will be 7/24/21 so Long Term (Part II) ,Non-covered Security, Basis Not reported to IRS (Box E). 

Can you help me using the numbers above to calculate the Cost Basis of the fractional shares?  Are there any other numbers needed to calculated this?

[GeorgeM777]

Based on the number of shares you inherited--900 shares--and the cost basis per share--$28.098--you may have a small realized loss from the fractional share, less than $5.00.  Below is a link to AT&T's Investor Cost Basis Guide all of which relates to the questions you have raised. Near the bottom of the screen is a fairly straightforward calculator where you can enter the numbers you have provided in your post and arrive at the basis for the fractional share.  

Investors Cost Basis Guide

@angelv17 

[angelv17]

Thank you!