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

[TomYoung]

Yes the merger with Micro Focus is clearly a sale and I know a 1099-B was issued in that transaction.  I've dealt with that transaction several times in here.

I was referring to the spin off of Seattle Spinco, which was tax free.  The question is: are the Seattle Spinco shares received also "ESPP shares"?  It seems like logically they must be but "logic" and "income taxes" hardly ever appear in the same sentence and I've never been able to pin that question down definitively.  This is another question I've dealt with several times over the years.  In at least once case the poster claimed, based on W-2 reporting due to a sale of parent company stock, that all the ESPP elements remained with the parent company stock, i.e., there was no unaccounted for discount to be attributed to the spun off company stock, but since I couldn't really see any documentation I'm uncertain if that claim is correct or not.

[Bodie7]

Also I noticed some spinoffs are using 3 entities,  HPE->Everett->DXC and some are using only 2, HPQ->HPE.  In anycase,  I just "assume" the ESPP part will be passed on to spinoff company in the proper ratios. I haven't sold any of my ESPP stocks so I didn't have to worry about it till now.  Thanks for your replies.

[Bodie7]

I guess the 2 entity spinoff is a pure spinoff, and the 3 entity one is a spinoff/merger with another company. Does this make any difference with ESPP?

[maglib]

@Bodie7 I just found this  <a rel="nofollow" target="_blank" href="http://www.hpalumni.org/stock">http://www.hpalumni.org/stock</a>   walks you through the whole reporting...and even provides retirees contact information!  My limited 5 min cursory review it seems yes there are tax consequences and yes the bargain purchase element will be ordinary income.

[Bodie7]

Thanks marlib, I have been using their site, spreadsheets, and forums. Really great info there but there were still was some questions about whether or not this 367(a) would trigger an ESPP event or whether the ESPP event could be delayed until the actual sale of the MFGP stock.  Seen indications both ways on their forum with no definitive answer so I thought I would ask here. The 367(a) foreign spinoff/merger has not occurred with an HP stock spinoff before, so there are still questions on how it interacts with ESPP. Guess it is best to error on the side that it does trigger an ESPP event and report the ordinary income. They do have all the info out there to work out all of the calculations needed. They did a great job. Thanks for your reply and assistance.

[TomYoung]

"I guess the 2 entity spinoff is a pure spinoff, and the 3 entity one is a spinoff/merger with another company. Does this make any difference with ESPP?"

In my opinion, "Yes".  

It's the "sale" of stock acquired via an ESPP that creates compensation income and a tax-free spin off simply is not a sale.  It would seem like the basis allocation required when a spin off occurs would apply equally to shares acquired via an ESPP.  So all of the "per share" numbers on the Form 3922 would be allocated in a similar fashion.

So, logically, the spin-off of SeattleCo would result in those shares also being considered as "acquired via an ESPP" but would not generate compensation income because no sale has occurred.  However the tendering of the SeattleCo shares for MicroFocus is, legally, a sale and would create any ESPP compensation income.  To make that more clear, you could have immediately sold your MicroFocus shares, at no gain or loss, and converted the proceeds of your SeattleCo shares from "stock" to "cash."

[Bodie7]

Thanks Tom, that makes sense.

[mikemo50]

maglib - So I'm really confused.  I just talked w my broker who says for the 1099-B entry for the Seattle Spinco transaction that I should enter cost basis of 0 so gains matches proceeds (even though I didn't receive any cash).   It appears some folks are calculating a cost basis for this.  If I do use 0 as a cost basis, would I then simply add that gain to the cost basis of the microfocus stocks when I do sell those?   The 1099-B from the broker simply had no entry for cost basis on this and listed 0 as gain.   The 1099 shows total Seattle Spinco entry of 5898 shares for total of 23764.59.   I'd love any response/help you could give maglib.

[maglib]

page 5 clearly indicates basis allocation to spinco  <a rel="nofollow" target="_blank" href="http://investors.hpe.com/~/media/Files/H/HP-Enterprise-IR/documents/seattle-6045b-statement-26092017... cost basis and your proceeds would match basically and there is no gain.  I know both TD Ameritrade reported cost to be same as proceeds for net $0 gain on spinco which matches what is reported. Ultimately that basis moved to Micro focus. You could take no losses in any of the transactions.  Basically seattle co  became Microfocus although it was reported as a sale, you got same interest in Microfocus as you had in spinco if that makes sense.

[mikemo50]

Thanks maglib - That's what I initially thought.  But then looking at the HP Alumni spreadsheet (post2000 one),  it works up the gains for the Seattle SpinCo which should be on the 1099B.  The spreadsheet creator also states that the SpinCo transaction would also require reporting elements (certain ESPP shares) as ordinary income as well).    Still confused.   My broker only supplied a 1099B w the number of shares and 'Proceeds' listed with an empty cost basis box and zero entered for Gains/Losses.  TurboTax wants me to enter the basis since it's missing.  From what I think you said, I'm safe to enter the same amount from Proceeds in the cost basis box.  Correct?  Thanks again.

[maglib]

your broker would have proceeds as 0 as it was related to employment.....  no different then sales sold in espp's.

[mfbaig]

I have a reported long term gain of 67,294 on Seattle Spinco merger.  My broker told me to use $67,159 as the cost basis but I'm confused about how he came up with it.  What do I put into Turbo Tax in the way of explanation?

[mee2]

same exact situation for me.. ex HP employee with ESOP in 2006-2012... no cost basis, no purchase dates for stock purchased before 2011.. your advisor indicated to match the cost basis? i dont think that makes sense because there were proceeds @ $4.30 per share for MICRO FOCU ADR CONTRA in 2019 even though the stock was trading at $24 when it went down on May 20, 2019. I didnt sell any stock, it was a broker and barter exchange transaction..