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How to enter EMC DELL merger transactions?

unknown

On Sep 7, EMC Corp merged into DELL. The brokerage lists a "sell" transaction for EMC shares as "corporate action (adjustment)" as the transaction type and "transaction description" as "Adjustment to merger". In addition, I received shares of DVMT with ZERO cost noted and the annotation "corporate action (adjustment)" as the transaction type and "transaction description as "Adjustment to merger". I am not clear how to enter these two transactions in Quicken. Would it be a simple "sell" and "buy" (with zero cost)??

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q_lurker

My inclination would be to delay until more information is available. I have not attempted to track down the SEC prospectus filing that may shed more light. I would not trust those early downloads from your brokerage. That information also will be subject to change and the details become more evident.

You received $24.05 in cash and 0.11146 shares of DVMT for each share of EMC. The value of the DVMT shares is the subject of interpretation but should be in the area of 46.50/share. That makes you total value received about $29.23 / EMC share [24.05 + 0.11146 * 46.5]. I suspect this will be treated as a sale of those EMC shares for a price like that (capital gains or losses applicable) and then a purchase of the DVMT shares for the approximate $46.50 rate. That rate is purely my shot at a value based on 9/7 trading range. Do not rely on that figure. Do your own due diligence.

Once you have bought the 0.11146 shares of DVMT / EMC shares, in Quicken you would sell the fractional share for whatever cash-in-lieu your broker reports.

Again, I encourage patience. I expect Dell will be issuing a form 8937 or similar information in the coming days.

unknown

Thank you for your excellent response. The brokerage has zero as the cost of the new shares and I wondered if that was correct. Your explanation makes sense to me. Appreciate it!1

reginaO

Can you keep me up to date on EMC DELL merger

Tom Young

The proxy statement for this deal contains very standard boilerplate covering the income tax consequences for holders of EMC shares. Namely, EMC shareholders will recognize gain (but not loss) to the lesser of the cash received for the shares tendered or the gain based on the "proceeds": (cash per share received + FMV of tracking stock received per share) x number of EMC shares tendered. The calculation is done on a lot-by-lot basis. The resulting basis of tracking stock received - again, calculated on a lot-by-lot basis - is: Basis of shares tendered - cash received + gain recognized. The holding period of each lot carries over to the new shares.

On 9/7 the tracking stock's open/high/low/close was:

$49.56
/ $50.17
/ $48.14 /
$49.08

and you are free to derive a "FMV" on your own, though at some point a Form 8937 should be issued with a recommended FMV and an example (probably just one, probably at a gain) as to how the calculation of gain/(loss) would be done.

In my case my broker - Schwab - has pushed down two "Withdraw" actions with no shares attached to these transactions for EMC and Dell Technologies, and a "Deposit" action which clearly is the Cash in Lieu for the fractional share. I used $49.865 - average of the high and low - as the FMV and $52.42 as the selling price of the fractional share, derived to come back to the amount of the deposit.

q_lurker

@Tom Young: The values I saw on Yahoo finance for DMVT were
Sep 07, 2016 Open 45.07 Hi 49.38 Low 45.02 Close 48.00

My 46.50 was approx the average of the Open and Close.

Your values appear to be closer to the 9/9 data from Yahoo Finance.

reginaO

what Quicken transaction do I use

Terry Lemons

I like the consensus to wait for more details on the finer points of value. But, how best to record this using the available Quicken transactions, in such a way that the cost basis of the EMC shares are appropriately applied to the cash received and the DVMT stock? Thanks.

q_lurker

I would be using:
1. Sell Shares to dispose of the EMC shares
2. Buy Shares to reduce the quantity of cash to the correct value and to initially establish the cost basis of the DVMT shares (lot by lot based on prior EMC lots).
3. Remove Shares and Add Shares transactions to reset the acquisition date for the DVMT shares back to when the EMCShares were acquired
4. Sell shares of DVMT to turn the fractional share into cash-in-lieu.

Tom Young

Upon further review, it does look like I've picked up the 9/9 values. (Maybe it's time for new glasses.) Using the same methodology that gives me a $47.225 value. I'd go back and change my response but, of course, I can't. Good catch.

Terry Lemons

But what if you bought/acquired EMC shares in dozens of transactions of many years? #3 doesn't seem workable in that case. Doesn't Quicken track the cost basis of the many transactions, and can't that be used in setting the basis of the resulting cash-and-stock transaction? thanks.

q_lurker

It is both #2 and #3 that can become cumbersome for multiple lot holdings

Yes, it does, but while that data can ease the process, it does not make it easy. These are complex transactions and so far Quicken, Inc. has chosen not to try to implement this level of complexity into the programming. Outlined below is a methodology to make use of some of Quicken's tools to ease this process for multiple lot holdings.

1.
Create a spreadsheet similar to below
identifying relevant values for each lot held.
You may be able to populate that with data transferred from a Quicken report,
but value of such transfer efforts will depend on the complexity of the
holdings and the number of lots involved.

2.
Create a temporary brokerage account.

3.
9/6/16 – Enter a Shares Transferred between
Accounts transaction transferring all shares of EMC to the temporary brokerage
account.

4.
Delete the Remove Shares transaction for EMC generated
in the original account.

5.
9/7/16 – Enter Sell Shares transactions as
applicable based on the spreadsheet data.
Shares sold at a common price can be grouped together into one
sale.

6.
In the temporary brokerage account, for 9/7/16
enter a Corporate Acquisition transaction with Dell Technologies (DVMT)
acquiring EMC at the 0.11146 share ratio.
The share value of about 46.5 can be used if desired.

7.
Edit each of the Add Shares transactions
generated by the Corporate Acquisition to correct the cost basis per the
spreadsheet data. It may also be beneficial
to round all share values to a consistent precision (like nearest 0.001
shares). Get the cost basis and share
quantity right; let the price/share compute from those other values.

8.
Enter a Shares Transferred between Accounts
transaction transferring all shares of Dell Technologies back from the
temporary account to the original account.

9.
Delete the Remove Shares transaction for the
Dell Tech shares from the temporary brokerage account.

10.
Back to the original account, edit each of the
Add Shares transactions for Dell Tech to be Buy Shares (alt-G). When all such edits are completed, the cash
balance for the account should have increased by the total cash received as
part of the merger ($24.05/EMC share).

11.
Enter a Remove Shares transaction removing all
Dell tech shares from the original account.

12.
Back to the temporary brokerage account, repeat
the Shares Transferred action again moving Dell Tech shares to the original
account on 9/7/16. The original account
should now have pretty much for each lot:
Sell Shares of EMC, Bought Shares (Dell Tech), (one) Remove Shares (Dell
Tech), and Add Shares (Dell Tech).

13.
Finally, for any ‘cash-in-lieu’ amount received,
enter a Sell Shares of the fractional share Dell Tech holding for the ‘cash-in-lieu’
amount. This may be dated a few days
after the merger transaction is recorded.

14.
You are now done with the temporary brokerage
account. Delete it and all transactions
in it.

What that sequence does:

The Sell Shares of EMC should generate correct
capital gains data for tax planning.
The Buy Shares of Dell Tech should adjust your
cash balance to the proper level.
The Remove shares and Add shares of Dell Tech should
establish the correct cost basis and acquisition dates for the Dell Tech
holdings so that future cap gains are determined correctly.
The Sell shares for the cash-in-lieu amount
should add in that amount of cash received and bring your share balance down to
an integer value consistent with your brokerage data.
By using the Shares Transferred and other
Quicken functions, you have let Quicken calculate and manage the basic share
quantities (subject to your rounding) and acquisition dates.

Cautions and comments:

Make use of backups. It is fairly easy to make mistakes in the
process and backups can ease recovery.
It is also fair to just delete transactions (Add Shares, Remove Shares,
etc) that were generated through this process.
Note that the Buy shares transactions are immediately
followed by a Remove Shares transactions.
The purpose is to bring the Cash Balance back down to the proper
level. Thus those multiple Buy Shares
could be consolidated into one Buy Shares followed by the one Remove Shares. Similarly, there are other ways to move cash
out without expensing it somewhere.
Proceed accordingly and however you are comfortable.
Watch the Dates!
As you are going back and forth between accounts and entering different
transactions, make sure the transaction date for each transaction is correct.

My final transaction list for this example consistent with the spreadsheet looks like:

and the cap gains report looks like:

HTH

Tom Young

I have a slightly different process for entering these transactions that may or may not reduce the amount of keystrokes. However, in the situation where the "dozens of transactions of many years" arose because of dividend reinvestments I've typically advised compressing all purchases in a given year, (except for the most recent year where the holding periods are both long term and short term), into one "lot" for purposes of tendering and calculating the basis in the stock received. The shares purchased via dividend reinvestment in any one year are generally not too material to the eventual outcome.

Since EMC only began issuing dividends in 2014 this may not be your situation.

reginaO

My brokerage split up the original cost between EMC, DVMT and fractional share
so if I sell all EMC I have a lower CG

q_lurker

@reginaO: Not sure about what you are seeing from your broker. My understanding was the all your EMC shares should be gone, having been fully acquired by Dell Technologies for which you got some DVMT shares and cash. What is with the "if I sell all my EMC" clause?

Nor am I clear on whether you have a further question or not.

reginaO

Brokerage shows all 4oo sh EMC sold and the original cost $6746.36 then split.

NOW Statements shows sale EMC $9620 - cost $4606.33= 5013.67 CG
then lists 44 shares DVMT with cost $2112
.584 frac DVMT sold $27.77 cost $28.03= -.26

Tom Young

@reginaO

That is exactly the correct answer if we are talking about one lot and IF YOU VALUE THE DVMT shares at $48.00 per share.

If you value the DVMT shares at $47.225 per share - the average of the high and low on 9/7 - then you have a reportable gain of
$4,979.12, 44 shares of DVMT with a cost of $
$2,077.90
and the fractional share sold has a basis of $27.58.

The point is that there is no one unarguable "right" answer to these questions because the "fair market value" to use for the DVMT shares has never been reduced to a cookbook formula. You can use whatever per share fair market value figure that you want, (and can convince the IRS of if they ever ask), and you'll get a slightly different answer with each change of the per share FMV, up to a point.

The differences between the numbers you received from the broker and the numbers I came up with using the average high/low are close enough that I would worry about using either "answer."

reginaO

What do enter in Q
How do I divide the Original cost ($6746.36) of the org EMC with EMC Sale & 44sh DVMT and Frac shares 0584

brokerage - Sale of 400 EMC cost $4606.33, 44, DVMT cost $2112,
.584 frac share cost 28.03

reginaO

Tom Young

Here is one way of making this entry in Quicken, after backing up your file:

On 9/7 do a "Remove" transaction of all 400 EMC shares tendered.

On 9/7 do an "Add" transaction reestablishing the 400 EMC shares you sold, with the "Date Acquired" set to the date you acquired those original 400 shares, but setting the basis of the lot at $4,606.33, ($11.515825/sh).

On 9/7 do a "Sold" transaction of all 400 EMC shares with proceeds of $9,620.00, ($24.05/sh). This will, properly, reflect the money deposited into your account due to the sale and result in a gain of $5,013.67.

On 9/7 do an "Add" establishing the 44.58400 DVMT shares received with a "Date Acquired" that's the same as the date you acquired the original EMC shares and a per share cost of $48.00.

On 9/7 sell the .584 fractional share tendered in the Cash in Lieu transaction at a per share selling price of $47.55.

You should end up with 44 shares of DVMT with a total basis of $2,112.00.

reginaO

thank you very much- much clearer explanation

unknown

Any update on the status of a Form 8937 being issued?

q_lurker

The 8937 form is currently available through this page.

That document uses the average of the hi and lo prices on 9/7/16 to arrive at a fair market price for the tracking stock of $47.20/share. That leads to a transaction valuation of $29.31 (= 24.05 + 0.11146 * 47.20).

That leads to an updated version of my spreadsheet as:

unknown

@q.lurker Very helpful. Thank you.

unknown

How do I enter loss on Turbotax knowing that this merger does not allow you to take a loss but the DVMT cost basis needs to be adjusted to take care of the loss amount. For example, my purchase price of EMC shares I bought in early 2000 is $30, when I enter cost basis in the Turbotax, it comes up as long term loss. Turbotax does not seem to take into account this kind of merger. can you help ?

q_lurker

@Chandra Vora: See my spreadsheet excerpt below, the Lot 3 line.

If you bought 1 share for $30 in early 2000, you would show in Quicken and in Turbotax selling that share for $30 as of the merger date, Sept 7. Multiply accordingly for the number of shares involved. Your basis for the 1.146 shares of Dell you received would be $30 - $24.05 = $5.95 or $5.192/share = $5.95 / 1.146. At such time that you sell those Dell shares, you would report in Turbotax that you acquired those shares in early 2000 for $5.95 or for the $5.192 per share.