Sold MMTLP Preferred shares in 2022, WeBull is reporting a zero cost basis and provided no supplemental form. Just trying to figure out how to proceed.

[CMNY]

Having a hard time figuring out how to proceed.  MMTLP were preferred shares from a spin off in 2021, I sold them in 2022.  WeBull is reporting a zero cost, and TurboTax is asking me to verify the cost from a supplemental form.  There is no supplemental form, so I am at a bit of a roadblock

[ShirlynW]

I am assuming, you are entering form 1099-B. Here is how you would proceed:

• Open or return to TurboTax.
• In TurboTax, search for “1099-B” and then select the “Jump to” link in the search results.
• You should see “Your investments and savings” screen, Select the sale, and click Edit.
• Select the title of the sale in the Sales Section and click the pencil.
• Select the type of investment.
• Enter a description in Box 1a.
• Enter the date you acquired the investment in Box1b.
• Box 1c enter the date sold.
• Enter the proceeds in Box1d.
• For Box 1e, enter the amount on the 1099-B.
• Put a check in “The cost basis is incorrect or missing.”
• Continue.
• Select if any of the situations apply to this sale.
• Continue.
• Select “I know my cost basis” and enter the actual cost.
• Continue and you will return to the Review screen.

[CMNY]

Thanks @ShirlynW . I think the biggest issue is that these shares were preferred shares acquired as part of a corporate action in 2021. The actual shares that triggered the dividend were sold in 2021, and the preferred shares were sold in 2022. The preferred shares are showing a zero cost basis, so the entire proceeds would be gains in this case. I guess that sounds correct to me, but I just wanted to make sure I wasn't missing anything or creating any red flags.

[GeorgeM777]

To better understand your tax situation, what firm issued the MMTLP shares to you?  You mentioned in your post that the MMTLP preferred shares were acquired in 2021.  Do you know the nature of the corporate action that was taken that resulted in the preferred shares being issued to you, i.e. corporate buyout, merger, special dividend, etc.?  

@CMNY 

[CMNY]

@GeorgeM777 The shares were issued in my WeBull account as part of a special dividend.  

Thanks!

[GeorgeM777]

We understand that the preferred stock dividend was deposited into your WeBull account.  However, if we can ascertain what company issued the preferred stock dividend, we may be able to determine whether you should characterize this preferred stock dividend as a capital gain, or if it should be characterized as an ordinary/qualified dividend.  Do you know if the company that issued the preferred stock dividend was Meta Materials, Inc.?  If not, perhaps you can contact your broker at WeBull and ascertain what company issued the preferred stock dividend.  

@CMNY 

[CMNY]

@GeorgeM777 George - it was Meta Materials that issued the dividend.

[GeorgeM777]

The following information was obtained from Form 10Q (Quarterly Report) for Meta Materials for the period ending June 30, 2021.  

On June 25, 2021, Torchlight effected a reverse stock split of its Common Stock, at a ratio of two-to-one, changed its name from “Torchlight Energy Resources, Inc.” to “Meta Materials Inc.” and declared a dividend, on a one-for-one basis, of stock of Series A Non-Voting Preferred Stock to holders of record of Company Common Stock as of June 24, 2021. 

Form 10Q Meta Materials, June 2021, pg. 11

If you were a Torchlight Energy shareholder, your basis after the reverse stock split remained the same.  That is, if you invested $1,000 in Torchlight Energy stock, your basis remains the same--$1,000.  However, in light of the reverse stock split, the number of shares you owned pre-reverse stock split were reduced by half.  For example, if you owned 100 shares, after the reverse stock split you would own 50 shares.  Again, your $1,000 basis, in this example, remains the same.  

Meta Materials issued you preferred shares, based on the above information from the 10Q, on a one-to-one basis.  Thus, if you owned 50 shares of Meta Materials, you were given 50 preferred shares in the form of a stock dividend.  Is that what happened?  If not, tell us how many shares of Meta Materials you owned and how many preferred shares you received.

It appears you may be correct in that your basis in the preferred shares is not zero as reflected on your 1099-B.  Because you sold your Meta Materials stock in 2021, you need to determine your per share basis in the preferred shares you sold in 2022.  To determine your per share basis in the preferred shares, you need to divide your basis in the Meta Materials stock you sold in 2021, by the total number of shares you owned (Meta Materials stock plus the preferred shares).  Once you know your per share basis in the preferred shares, you can multiply that per share basis by the number of shares you sold and the resulting number will be your cost basis for the preferred shares.  

If the above information is consistent with your tax situation, you may need to consider amending your 2021 tax return because your per share basis for the Meta Materials you sold in 2021 may be somewhat inflated.  

@CMNY 

As a supplement to our prior response, your basis in the preferred shares you sold in 2022 might have a zero basis in the event those preferred shares traded under their own ticker symbol which was separate from the ticker symbol for Meta Materials.  In other words, the preferred shares were one class of stock and the Meta Materials stock you owned was another class of stock and each traded separately on an exchange or over-the-counter.  In that instance, when you received the preferred shares, you received them without having to offer any compensation.  In other words, you got them for free because you were a Meta Materials shareholder.   In this scenario, then your basis n the preferred shares might be zero.  

[Edited 02/25/2023 | 6:22 PM  PST]

@CMNY