The EMC Dell merger resulted in EMC shares being converted to (a) cash $24.05 / EMC Share; (b) 0.1115 Shares of DVMT / EMC share; (c) CIL. How to input in turbotax?

[TomYoung]

"Is the sale of proceeds of EMC shares on the section 351 portion taxable ?"

The GAIN on sale - Proceeds minus Basis - is taxable, yes.

"If so, what cost basis can I apply against the sale of EMC shares ? "

As I explained, you need to DERIVE a basis to use, depending on your circumstances.  You need to derive it since the gain is limited to the lesser of the cash received or your "actual" gain.  And your "actual" gain is determined by allocating 86.77% of your EMC basis to the sale.

Given your example the Sec 351 gain is the amount of cash received so you'd report a basis in this case of $0 for that calculation.  

Then you'd use the remainder of your EMC basis against the "Redemption" cash, for another gain.

You could then report two separate "trades" or add the proceeds and basis amounts together as one "sale".

[kathleen2]

Tom,

After inputing my 1099-B information into Turbo Tax, it shows income of $5202. Do I need to do any other calculations? I'm confused with the 86% Exchange and 13%  Redemption information. Thank you for your help.


9/7/2016 EMC merger with Dell. Sold 315.339 shares @ $24.05. I received $7583.90 cash and 35 shares DVMT.
9/8/2016 I bought 150 shares DVMT with cash received.
9/20/2016 I received $7.15 cash in lieu of fractional shares.

1099-B
DESCRIPTION                PROCEEDS      ACQUIRED    COST BASIS.   GAIN

Short Term Covered Tax Lot:
EMC Corp Mass Mgr.          68.96.         Various.            56.94.             12.02

Long Term Covered Tax Lot:
EMC Corp Mass Mgr.          155.65.        Various.         143.34.              12.31

Long Term Noncovered Tax Lots:
DELL Tech INC Com CL V.      7.15.          3/14/05.           6.97.               0.18
EMC Corp Mass Mgr.      7,359.30.         Various.       2181.46.         5177.84

                                                                                      Total Gain.    5202.35

[TomYoung]

@Kathleen

You really aren't allowed to use "various" when it comes to the Sec 351 computation; that requires a lot-by-lot calculation as only GAINS are allowed, not losses.  So while you do have a gain on each of the 3 "lots" you listed, you might be netting some losses in there to come to that gain.  Too, for each lot where you do have a gain you report the lesser of the cash received or the "actual" gain on that lot using the cash plus stock received as the "proceeds".  That said I've frequently advised people who have years and years of dividend reinvestments to pull together a year's worth of reinvestments as one lot, just to cut down on the work involved and under the assumption that's "close enough."

Look at your actual per share basis in the detail of your lots making up the 3 "lots" you've listed.  If any lot has a per share basis of above $29.31 you have a loss on that lot and you need to pull it out.  Any lots with per share basis between $6.07 and $29.30 will have a real gain that's less that the $20.17 per share used in the Sec 351 calculation.  Any lots with a per share basis of $6.06 or less will use the $20.17 per share as the gain figure.  

ASSUMING that the missing detail above put all the lots into that wide spread where actual gains would be reported I came up with reportable gains under the Sec 351 computation of $23.50, $40.21 and $5,889.01.  That's using the Sec 351 proceeds figure of $25.4309 per share tendered.  Of course for reporting purposes you use the cash proceeds reported on the 1099-B so you'd report

                 Proceeds Basis Gain
Long Term $6,302.56 $373.34 $5,929.22
Short Term      $57.83   $34.32      $23.50

Then you use the remaining $3.88 of cash as "proceeds" against the remaining 13.23% of EMC basis for

Long Term      $1,212.39       $307.57       $904.82
Short Term          $11.12           $7.53           $3.59

[kathleen2]

Tom, I found more details on the tax lots. I only had div reinvestments from 2014 to 2016. Could I send you the reports via email? Im ready to file my taxes, except for this one stock merger. It still has me perplexed. Your help is very appreciated. Thanks.

[TomYoung]

I'm a user like you so I'm not going to post my email in here since every spammer in the world with an Internet connection can see it.

But as I said, if ALL your EMC lots have a per share basis between $6.07 and $29.30 - which seems highly probable - then lumping them together the way you did will result in the exact right answer for income tax reporting purposes  - at least according to my interpretation of the deal..

This is a terribly complex deal and I GUARANTEE you that most income tax returns that report this transaction will be wrong.  Heck, I can't even claim with 100% certainty that I'm correct.  Even though I revel in the "small stuff" details I know as a practical matter that "close enough" usually suffices when it comes to income tax reporting.  The chances of getting  audited are incredibly long and most IRS auditors won't understand the deal either.  Go with my numbers, go with your original numbers, try you own hand at coming up with the numbers.  Do you best and go with it, and don't lose a minute of sleep.

[kathleen2]

Tom, I understand not wanting to list your email. I was able to copy and paste the info. Thanks.

Security Trans type Qty Open date    Adjcost.  Closedate Adjproceeds Adjgain ($) Adjgain (%) Term

DELL TECHNOLOGIES INC-CL V Sell.FIFO 0.1477 03/14/05 6.97 09/20/16 7.15 0.18 2.58 Long-term

EMC CORP 315.339 --- 534.57 --- 1,223.52 688.95 128.88 Multiple
Corp Action G/L 306 03/14/05 501.59 09/07/16 1,187.28 685.69 136.70 Long-term
Corp Action G/L 1.217 07/23/14 4.66 09/07/16 4.72 0.06 1.29 Long-term
Corp Action G/L 1.267 10/23/14 4.67 09/07/16 4.92 0.25 5.35 Long-term
Corp Action G/L 1.251 01/23/15 4.69 09/07/16 4.85 0.16 3.41 Long-term
Corp Action G/L 1.343 04/23/15 4.71 09/07/16 5.21 0.50 10.62 Long-term
Corp Action G/L 1.394 07/23/15 4.73 09/07/16 5.41 0.68 14.38 Long-term
Corp Action G/L 1.371 10/23/15 4.75 09/07/16 5.32 0.57 12.00 Short-term
Corp Action G/L 1.496 01/22/16 4.77 09/07/16 5.81 1.04 21.80 Short-term

EMC CORP 315.339 --- 3,506.14 --- 8,019.36 4,513.22 128.72 Multiple
Corp Action G/L 306 03/14/05 3,289.71 09/07/16 7,781.86 4,492.15 136.55 Long-term
Corp Action G/L 1.217 07/23/14 30.53 09/07/16 30.95 0.42 1.38 Long-term
Corp Action G/L 1.267 10/23/14 30.66 09/07/16 32.22 1.56 5.09 Long-term
Corp Action G/L 1.251 01/23/15 30.79 09/07/16 31.81 1.02 3.31 Long-term
Corp Action G/L 1.343 04/23/15 30.91 09/07/16 34.16 3.25 10.51 Long-term
Corp Action G/L 1.394 07/23/15 31.04 09/07/16 35.45 4.41 14.21 Long-term
Corp Action G/L 1.371 10/23/15 31.18 09/07/16 34.86 3.68 11.80 Short-term
Corp Action G/L 1.496 01/22/16 31.32 09/07/16 38.05 6.73 21.49 Short-term

Totals:  Adjcost 4,047.68. Adjproceed 9,250.03 Adjgain 5,202.35  Adjgain% 128.53

Symbol: DVMT
Description: DELL TECHNOLOGIES INC-CL V
Current quantity: 185
Current cost basis: 9,178.49
Long positions
 Date Transaction Qty Cost adjust. Cumulative shares Cumulative cost
09/07/16 Merger xxxxxxxxx (EMC) to 24703L103 (DVMT) 35.1477 1,658.97 35.1477 1,658.97
09/08/16 Buy 150 7,526.49 185.1477 9,185.46
09/20/16 Sell. -0.1477 -6.97 185 9,178.49

Symbol: EMC
Description: EMC CORP
Current quantity: 0
Current cost basis: 0.00
Long positions
Date Transaction Qty Cost adjust. Cumulative shares Cumulative cost
06/02/11 Internal Tax Lot Transfer 306 3,791.30 306 3,791.30
07/23/14 DivRe 1.217 35.19 307.217 3,826.49
10/23/14 DivRe 1.267 35.33 308.484 3,861.82
01/23/15 DivRe 1.251 35.48 309.735 3,897.30
04/23/15 DivRe 1.343 35.62 311.078 3,932.92
07/23/15 DivRe 1.394 35.77 312.472 3,968.69
10/23/15 DivRe 1.371 35.93 313.843 4,004.62
01/22/16 DivRe 1.496 36.09 315.339 4,040.71
09/07/16 Exchange xxxxxxxxx (EMC) to xxxxxxxxx (EMC) -315.339 -4,040.71 0 0.00

Symbol: EMC
Description: EMC CORP
Current quantity: 0
Current cost basis: 0.00
Long positions
Date Transaction Qty Cost adjust. Cumulative shares Cumulative cost
09/07/16 Exchange xxxxxxxxx (EMC) to xxxxxxxxx (EMC) 315.339 3,506.14 315.339 3,506.14
09/07/16 Merger xxxxxxxxx (EMC) to 24703L103 (DVMT) -315.339 -3,506.14 0 0.00

[TomYoung]

There's no need for me to do any more because the broker obviously has made ALL the calculations for you and even split the transaction into its two component parts, one for the Sec 351 calculation and the other for the Redemption calculation.

The reason I came up with different answers based on your summary information is because the "Cost Basis" figures you disclosed were not your actual cost figures for the shares; they are the cost figures the broker "derived" in order to come up with the correct gain to report on your 1099-B.

[kathleen2]

Thank you for your help. Have a nice day!

[chefserv]

If it would be possible to walk through this step-by-step for how to do this in TurboTax including how to calculate before hand it would be super helpful.  Thoroughly confused.

[intrustfinancial]

This is extremely complicated, especially if you have a capital loss but for some reason can't take it (very unfair)

Here are my facts.  Had 40 shares of EMC and received a 1099-B that showed 80 shares sold along with a fractional number of shares in VMT of .4568.  My basis is from one lot purchased in 2001 for $1524.40.  The total value received was $24.05 per share on the 80 shares ($962) plus the 4.458 shares in DVMT valued at $47.20 per share for a total of $210.42.  Total value received would then be $1172.42.  So I assume my cost basis would be allocated to the EMC shares and the DVMT shares based on value.  My EMC basis would then be: Total EMC value of 962 divided by total value of $1172.42 = .82 x basis of $1524.40 = $1240.87.  My DVMT basis would be xxx.xx/xxxx.36 = .18 x $1524.40 = $273.53. 

As I'm reading the above, I should calculate the 351 portion 1st.

40 shares x 20.17 = $806.80 - basis ($1240.87 x .8677 = $1076.70) = loss -$269.90 which is not deductible and lost forever?  So I would report basis on this of $806.80?

40 shares x 3.88 = $155.20 - basis ($1240.87 x .1323 = $164.17 = loss of -$8.97 which is deductible.

The 1099 B reported the .458 fractional share sale at $22.20 and I would calculate my basis at (273.54/4.458 x .458 = $28.10) for a small loss of $$5.90

Tom, does this make sense to you???  I'm have a hard time understanding why I cant take a loss on the section 351 calculation though.

[TomYoung]

Since you have a 1099-B that shows you sold 80 share (of EMC I assume) why are you using 40 shares in your calculation?  Makes the proceeds $2,034.47.  And where did the $1240.87 basis figure come from?  Basis should be ($1,524.40 x .8677) = $1,322.72.  I figure you have a gain of $711.75 .

"So I assume my cost basis would be allocated to the EMC shares and the DVMT shares based on value."

Where are you getting that?  Step 5 above tells you how to calculate the basis of all the DVMT stock received.  I say $420.87.

"40 shares x 3.88 = $155.20 - basis ($1240.87 x .1323 = $164.17 = loss of -$8.97 which is deductible."

Again, why are you using the 40 shares figure?  You sold 80 shares according to the 1099-B.  And what's with the $1,240.87 basis figure?  Your numbers aren't making sense.  Assuming we are dealing with 80 EMC shares at a basis of $1.524.40 I get a Redemption gain of $108.72.