sales treatment for shares received in an Agilent spinoff on ESPP shares

[lm171]

In 2014,Agilent Technologies completed the spinoff of Keysight Technologies and for all shares owned distributed 1 shares of Keysight for every 2 shares of Agilent. This was done for all shares owned which included my ESPP shares.  In 2021 I sold some of the Keysight ESPP shares and the 1099B identified the shares  as acquired through the employers stock purchase plan. I still own all corresponding  the Agilent ESPP shares.  How do I record the sale?  This was a qualifying disposition but do I have to treat these additional shares as ESPP shares?  How would I allocate to determine the compensation income?

Thanks,

LM

[SundayInSalem]

Agilent Technologies (A) spinoff of Keysight (KEYS) was tax-free, meaning the cost of your old Agilent shares should be split between your post-divesture Agilent shares and new Keysight shares.

That is, if the total cost of your old Agilent shares was $100 then the combined cost of your Agilent and Keysight shares should be $100, for example, your Agilent could basis might be reduced to $67 and your Keysight shares would be worth $33.

Aglient says:
For US federal income tax purposes, your aggregate basis of the common shares that you hold in Agilent and the new Keysight common stock received in the distribution (including any fractional share interest in Keysight common stock for which cash is received) will equal the aggregate basis in the Agilent common shares held by you immediately before the distribution, allocated between your Agilent common shares and the Keysight common stock (including any fractional share interest in Keysight common stock for which cash is received) you receive in the distribution in proportion to the relative fair market value of each on the distribution date.

Consult the Keysight Distribution Tax Basis Letter

[lm171]

Thank you for the response.   I have allocated the basis but when entering the ESPP grant price, exercise price and discounted exercise price, etc.,  on the sale it doesn't give me the correct basis.  Do you see what I'm saying.

thank you,

LM

[Critter-3]

Simply skip the ESPP entry ... enter it as a reg stock sale since you know the cost basis.

[lm171]

Hi :

I agree but the 1099B identifies the stock as ESPP sale.

Thanks, 

LM

[Critter-3]

To the IRS it is the same thing ... skip the ESPP section of the program since TT doesn't handle spin offs correctly as you can see.  

[jeffhowe]

I know this is an old thread, but the answer given doesn't completely answer the question. While it addresses the capital gains issue regarding cost basis, it completely ignores the issue of how to determine the ordinary income portion of the ESPP sale. How do you allocate and determine the FMV and sales prices for both the old and new companies to determine the ordinary income on the sales of both companies' ESPP shares?

[MarilynG1]

The calculation is governed by IRS Section 423. The "Ordinary Income" is essentially the "bargain" you received when you first bought the stock, which is finally "triggered" for tax purposes when the merger causes a sale or exchange.

The formula for ordinary income depends on whether the sale is a Qualifying or Disqualifying disposition.

A. Disqualifying Disposition (Sold < 2 years from Grant Date OR < 1 year from Purchase Date)

In a merger/buyout, this is common. The ordinary income is fixed regardless of the final sales price:

Ordinary Income = (Old Company FMV on Purchase Date) - (Price Paid per Share).

For example, if you receive $15 per share in a buyout but the FMV on your original purchase date was $10, and you paid $8.50, your ordinary income is $1.50 ($10 - $8.50). The remaining $5.00 ($15 - $10) is capital gain.

B. Qualifying Disposition (Held > 2 years from Grant Date AND > 1 year from Purchase Date)

The ordinary income is the lesser of:

The actual discount offered by the plan (usually 15% x Grant Date FMV), or

The actual profit made on the sale (Sales Price} -Price Paid).

Check your final 1099-B: The broker (like Fidelity, Schwab, or E*TRADE) usually provides a "Supplemental Tax Statement" alongside your 1099-B that breaks down the ordinary income vs. capital gain for ESPP shares.

Review the "Tax FAQ" for the Merger: Most companies (e.g., "Company A Acquisition of Company B Tax FAQ") publish a PDF for employees explaining exactly how to treat the conversion of shares.

@jeffhowe