How do I report the gain from the HPE to Micro Focus spin-merger in TurboTax Deluxe?

[dtljhl]

HPE spun off "Seattle SpinCo" which then merged with Micro Focus (MFGP) on 1 Sept 2017.  The 8937 from HPE says "US shareholders will be required to recognized gain (but not loss) on the exchange" of these shares.  We've figured out the amount of our gain by comparing our cost basis to the FMV of the shares we received. 

The 1099-B from our broker for 2017 shows the sale of a partial share of MFGP resulting from the spin-merge but no other mention of the spin-merge.  We will enter this as a sale of the partial share.

How do we enter the gain from the exchange of the full shares into TurboTax?

[TomYoung]

I expect you will get a 1099-B for the exchange of the Seattle stock for the Micro Focus ADSs.  They generally get distributed mid-February.

But if you know what that 1099-B is going to report - and you should have a pretty good idea as you've read the Form 8937 - then you could file and tell TurboTax no 1099-B was received.

Tom Young

[dtljhl]

Tom, Thank you.  We did get an amended 1099-B in mid-February.  It was easy from there.

[maglib]

Just in case you owned HP prior to 2015.  In 2015 Split of HPQ and HPE  47.15% basis to HPQ and 52.85% basis to , HPE  http://h30261.www3.hp.com/faq/separation-faqs.aspx

I just went through all the HPE spin offs for 2017

You can not have losses, they just reduce cost basis.  A few Cash in Lieu (CIL) and  a Seattle Co sale , you then increase your basis in the new company Micro Focus by the basis you had allocated to Seattle Class A plus the gain recognized.

Took me a while to figure it all out. Here are links to HPE basis allocations.

There were 2 spinoffs/reorganizations from HPE this year.

1. was 3/31 Everett distribution, merged to CSC, and CSC is surviving company: HPE 75.1% of basis, Everett 24.9% and you got .085904 shares of Everett for every HPE.  You may have CIL, Ultimately Everett named DXC Technologies.

http://investors.hpe.com/~/media/Files/H/HP-Enterprise-IR/documents/everett-6045B-statement-form8937... 

2. 9/1 distribution Seattle Class A, Micro Focus.  HPE basis 77.92%, Seattle Co 22.08% got 1 for 1 and Seattle co gets sold recognize a gain, no losses.  Allocate the Seattle Co basis plus the gain (plus the loss) to ultimate shares of MicroFocus .13732611 Micro Focus ADS for every Seattle co. 

http://investors.hpe.com/~/media/Files/H/HP-Enterprise-IR/documents/seattle-6045b-statement-26092017... 

If you want to post your math, I will review it but it takes a lot of time doing each allocation.

[dtljhl]

Maglib, Thank you for the links to the documents.  I think we can figure it out from here.

[maglib]

you are welcome....  the end part is confusing at best of moving basis to the new Microfocus

[Bodie7]

What if your shares are part of the ESPP program, do you have to report 15% of gains as ordinary income - this is not an actual sale of the stock. The 367(a) forces you to pay taxes on gains, but how do the ESPP interact with it?

[maglib]

Good question.  I would think the reorganization would follow the same rules as recognition of gains and no losses in the reorg.  Your employer would have calculated the gain to include in your w-2 if there was income to recognize and you would have gotten a 1099B just like anyone else received in the reorg.  I found these:  <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-wd/0317023.pdf">https://www.irs.gov/pub/irs-wd/0317023.pdf</a>  and  <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-wd/201519031.pdf">https://www.irs.gov/pub/irs-wd/201519031.pdf</a>  I would think your employer would have sent some information.

If you participated in an employee stock purchase  plan:
You don't include any amount in your gross income as a result of the grant or exercise of your option to purchase stock.
You may have to report compensation on line 7 of Form 1040, U.S. Individual Income Tax Return, and capital gain or loss on Schedule D (Form 1040), Capital Gains and Losses, and Form 8949, Sales and Other Dispositions of Capital Assets, when you sell the stock.
The amount of compensation and capital gain or loss depends on whether you satisfy the holding period requirement.
You satisfy the holding period requirement if you don't sell the stock until the end of the:
The 1-year period after the stock was transferred to you, AND
The 2-year period after the option was granted
You should receive a Form 3922, Transfer of Stock Acquired Through an Employee Stock Purchase Plan Under Section 423(c), from your employer when the employer has recorded the first transfer of legal title of stock you acquired pursuant to your exercise of the option. This form will assist you with the tracking of your holding period and your cost basis for the stock purchased through your qualifying plan.

[Bodie7]

I am retired so I do not received any W2's. The ESPP stock (15% discount with after-tax dollars) was moved to Fidelity after I left the company (all holding periods satisfied long ago). I understand the 367(a) taxes and the ESPP taxes if they were each done standalone. But done together in the HPE/Seattle Spinco/MFGP spinoff I dont know if the ESPP rules apply since I havent really sold anything. Do I have to pay the ESPP ordinary income part now as part of the spinoff? If so, do I have to pay ordinary income part again when I actually sell the MFGP stock? Or is the ESPP part delayed and only triggered for a actual sale? I know that the MFGP cost basis gets revised as part of the 367(a) spinoff.

[maglib]

then these are securities I would believe have a bargain purchase element that must be recognized as ordinary income.

[Bodie7]

So pay the ESPP ordinary income part now on current gains (due to 367(a) spinoff) and then pay the ESPP ordinary income part again later on future gains when the MFGP stock is actually sold?

[TomYoung]

And whatever the answer I'd love to see a cite.

[maglib]

she is retired no longer is an employee.  She owned them for over 3 years.

[TomYoung]

There's no "expiration date" on a stock acquired via an ESPP creating ordinary income.

The real issue here is whether a spin-off creates another share with ESPP attributes and I've never figured out that answer, definitively.  I think that's an element of Bodie7's question here.

I can't see how a pure tax free spin-off creates any obligation to recognize ordinary income if you happen to hold shares acquired via an ESPP.  There's no 1099-B created in this case which is the signal that a sale has taken place.

[Bodie7]

This is not a tax free spinoff. Since MFGP is a foreign company, rule 367(a) applies and all profits up to the spinoff must be recognized and taxed. (no losses allowed) There is a 1099-B created for the spinoff under Seattle Spinco. Here is the spinoff order HPE->Seattle Spinco->MFGP.  It shows the proceeds as the value of all Seattle Spinco shares at FMV merger price.