QWin: HPE software sold to Micro Focus UK firm

then merges some with DXC,

Not really, at least as I understood it: 24.9% of your "original" HPE basis was spunoff into the DXC shares through a couple of intermediate pricess that probably aren't really germane to your Quicken data. Form 8937 data here.
http://investors.hpe.com/~/media/Files/H/HP-Enterprise-IR/documents/stock-cost-basis-allocation-form...

Now some percentage (yet to be determined) of the remaining HPE basis is going to go off to some MicroFocus ADR shares. Very similar type of process, I suspect and very similar paper trail in Quicken. But until those percentages get established, I don't see where you can do anything in Quicken. Patience is a virtue.

Ps56k2

yeah - it was more of a heads up - it's happening again -

Gamal Mustafa

Do you know how to record in Quicken the HPE spin-off and subsequent merger of Micro Focus International? Is this considered a "Corporate Security Spin-Off". If so, what is the "New chared issued, per old share? And the Cost per old share and the Cost per new share?

I ended up with cash and shares from MicroFocus.

Also what does it mean by "spin-off and subsequent merger". Should it be one or the other?

Hewlett Packard Enterprise (NYSE:HPE) announced on Sept. 01, 2017 that it has completed the spin-off and subsequent merger of its software business with Micro Focus International plc (LSE:MCRO) (NYSE:MFGP), a leading global enterprise software company headquartered in Newbury, U.K.

I also found this info:
http://www.4-traders.com/HEWLETT-PACKARD-ENTERPRIS-24843838/news/HEWLETT-PACKARD-ENTERPRISE-CO-Regul...

It suppose to explain the deal, however this is over my head.

a) First it is
necessary to be patient in order that all the applicable data is published and
available. The most applicable document will be a US IRS Form 8937 which
should be out in a few days from HPE but could also be 40 days away.

b) Before doing any of this in Quicken, be sure you have a clean backup
available to give yourself a recovery or restoration point.

c) How an investor approaches this depends on several aspects - the Micro
Focus owner vs the HPE owner, the desire for accurate tax status information in
Quicken, the desire for accurate historical performance data out of Quicken.

d) I am not a shareholder of either HPE or Micro Focus, no am I a
tax pro, CPA, financial wizard, invetment adviser, or in any other fashion
professionally or academically qualified to provide advice on this type of
subject. Do you own due diligence and consult qualified sources as
applicable.

For this response at this early time, I am only assessing the HPE shareholder
circumstances and possible actions. My current information is from the
HPE website and their SEC filing 8K of 9/1/17:

http://otp.investis.com/clients/us/hp_enterprise1/SEC/sec-show.aspx?FilingId=12263015&Cik=000164...

That document says in part:

On September 1, 2017, the Company completed the Distribution, effective as of 2:59 a.m.
Eastern
Time, and completed the Merger, effective as of 3:00
a. m. Eastern Time. In the Distribution, the stockholders of the Company
received one share of Seattle Class A common stock for every one share of
Company common stock held at the close of business on August 21, 2017, the
record date for the Distribution. In the Merger, each share of Seattle
Class A common stock held immediately prior to the Merger was converted into
the right to receive 0.13732611 American Depository Shares (the " Micro
Focus ADSs "), each representing one ordinary share, par value
£0.10 per share, of Micro Focus.

I see nothing in this
information to suggest that this was a cash-to-boot transaction. This
appears to be constructed as a non-taxable transaction for HPE shareholders.
That is, the HPE shareholder seems to be only getting Micro Focus ADS
shares (cash-in-lieu excepted). From the standpoint of the HPE
shareholder, this appears to be a “standard”, non-taxable spinoff whereby the
HPE shareholder sees a decline in the value of his HPE shares in exchange for
the value of the newly received spinoff shares.
A percentage of the HPE cost basis is transferred to the newly held
(MFGP) shares.

The fundamental
requirement to getting this transaction right is to determine the fair market
value of the two securities just after the spinoff has occurred. For the DXC spinoff, HPE used the average of
the opening and closing prices on the trading date following the spinoff to
determine fair market values. I see HPE
opening and closing at 14.13 and 14.31 for an average on 9/1/17 of $14.22/share. For MFGP, I see 29.52 and 29.15 for an
average of 29.335/share. Considering
that you received 0.13732611 shares of MFGP for each share of HPE, your total
value became 14.22 + (0.13732611 x 29.335)
= $18.248. About 77.9% of that is the
HPE holding with about 22.1% allocable to the MFGP holding. Thus, you want 77.9% of the pre-spinoff HPE
basis to stay with HPE and 22.1% to transfer to your new MFGP holding. This consideration should be applied to each
lot of HPE held to create new lots of MFGP.

Note that those are MY
values; you would do well to coordinate your valuations with your brokerage
data. Their values should be
similar. Now back to Quicken.

QW2017: The good news is that the 2017 version has
fixed the approach for Corporate spinoffs.
You can enter the Corporate spinoff macro-transaction data using values
like the above data and get the correct entries made into your data. These will be a Remove Shares transaction for
the HPE holding followed by pairs of Add Shares transactions for each lot, the
pairs covering the HPE holding with its now reduced bases and the MFGP holding
with its share of that lot’s basis.

Older QW versions: The
Corporate Spinoff action in older QW versions did not do an acceptable job,
IMO. Thus I have been recommending users
bypass that process and manually enter in the Remove Shares and Add Shares transactions
to create this same result. One Remove
Shares for all HPE shares held, then pairs of Add Shares for each lot held.

All versions: Once the MFGP holdings are complete, you will
almost undoubtedly have some fractional shares of MFGP. Those fractional shares should be sold as a
Sell Shares transaction for the cash-in-lieu amount you have received (or will
soon receive). That should be a sale
somewhere in the $29/share range.

It would be nice to hear
some confirmation that this info is basically on target – that is, that someone
with say !00 shares received 13 shares of MFGP and perhaps $20
cash-in-lieu.

As stated initially, I
would not rush this info into Quicken.
Show some patience to be sure of the information you do proceed
with.

HTH

Greg_the_Geek

q.lurker,

Thank you very much for your detailed explanation of the MFGP spinoff. I have 2 questions for you. I tried entering the spinoff in both QW 2016 and QW 2017. In QW 2016, the Corporate Securities Spinoff action creates 2 transactions on the date that HPE was originally bought. 1 is a RtrnCap for HPE and the other is a Bought for MFGP. Is this the unacceptable job for Corporate Securities Spinoffs that older versions of QW perform?

In QW 2017, the Corporate Securities Spinoff action asks for the Closing price per share on the day of the spinoff and not the average. Do you know if HPE used the average price (as in the DXC spinoff) or the closing price?

FWIW, I own 63 shares of HPE and received exactly 8 shares of MFGP. No fractional shares or cash yet.

Thanks for all your help!

Greg

q.lurker,

Thank you very much for your detailed explanation of the MFGP spinoff. I have 2 questions for you. I tried entering the spinoff in both QW 2016 and QW 2017. In QW 2016, the Corporate Securities Spinoff action creates 2 transactions on the date that HPE was originally bought. 1 is a RtrnCap for HPE and the other is a Bought for MFGP. Is this the unacceptable job for Corporate Securities Spinoffs that older versions of QW perform?

In QW 2017, the Corporate Securities Spinoff action asks for the Closing price per share on the day of the spinoff and not the average. Do you know if HPE used the average price (as in the DXC spinoff) or the closing price?

FWIW, I own 63 shares of HPE and received exactly 8 shares of MFGP. No fractional shares or cash yet.

Thanks for all your help!

Greg

Is this the unacceptable job for Corporate Securities Spinoffs that older versions of QW perform?

I find it unacceptable. It alters history, showing you owned MFGP when you didn't and that you bought is for a price that wasn't established until much later. That will also affect performance measures in varying degrees. That is why I have commented complaints about that process for years on these forums and its predecessors. Finally, in the more recent revisions to QW2017, Quicken, Inc took my advice (and the advice of others) and changed the process.

I don't know what price HPE will choose to document nor what price your broker might choose to use. While Quicken now prompts for "closing" price, what they are really asking for is fair market price so that they can do the same math I did. The method is better, but the prompt is somewhat lacking at this point. The program will be plugging that price into the closing price for that date, perhaps subject to change by subsequent download quotes requests.

One of the advantages of the Add Shares entries is that it is easier for the user to override the calculations. If you plug in a price at the prompt and Quicken calculated the cost basis allocation to be $101 for one security and $27 for the other ($128 total), then you see your brokerage has done different math and gotten $99 and $29 (same $128 total), you can simply edit the applicable Add Shares transactions to adjust the cost basis allocations to match the brokerage data.

FWIW, I own 63 shares of HPE and received exactly 8 shares of MFGP. No fractional shares or cash yet.

I would bet in the next few days, you'll see a cash-in-lieu entry for about $20. If the sources I cited are accurate, you were due 8.652 shares (63 * 0.13732611) and that is what your Quicken Add Shares entry for MFGP should show. You would then sell that 0.652 fractional share for the cash-in-lieu amount which should be something like 0.652 * $30 or about $20.

deckmm

See also http://www.hpalumni.org/StockDecoder for reliable information and links to 8937s. As of this writing, I don't yet see the 8937 for Micro Focus/MFGP. As for me and my house, we won't enter any transactions into Quicken until the 8937 is released (because it answers all my questions).

HPE has now published Form 8937. See: http://investors.hpe.com/~/media/Files/H/HP-Enterprise-IR/documents/seattle-6045b-statement-26092017...

Using Quicken 2017, I did the following steps to record the spinoff:

Made a Quicken Backup File entitled "Before Micro Focus Spinoff"
From the "Security List" (under "Tools" on main menu bar), I made sure that MFGP or Micro Focus International security was deleted. If you already downloaded stock information or transactions from your brokerage company website, you will need to delete it (with the exception of the "cash in lieu of fractional shares" small deposit, as it comes in handy for the last step #22 below).
Opened the brokerage account register pertaining to the HPE shares
Clicked on the "Enter Transaction" tab
Used the "Corporate Securities Spin-Off" transaction function, entering in data from #6 - #12 below
Entered a "Transaction Date" of 9/1/2017
Selected the "Security name" for HPE from the pull-down tab
Entered the "New Company" as Micro Focus International
Entered the "New shares issued" as 0.13732611
Entered the "Cost per old share" as 14.22
Entered the "Cost per new share" as 29.34
Entered in memo "Nontaxable spin-off on 9/1/2017"
Clicked on "Enter/Done" tab
Waited a while (several minutes in my case) for the process to complete
Clicked on "Holdings" tab to note the total number of new shares of Micro Focus International and RECORD only the additional fractional shares. (for example, note 10.125 total new shares, RECORD 0.125 additional fractional shares).
Clicked on the "Enter Transaction" tab
Used the "Remove Shares" transaction function, entering in data from #18 - #21 below
Entered a "Transaction Date" of 9/1/2017
Selected the "Security name" for Micro Focus International from the pull-down tab
Entered the "Number of shares" as the additional fractional shares I RECORDED in step #15 above
Entered in memo "cash in lieu of fractional shares at spin-off"
Went to my brokerage company website to see the small deposit for "cash in lieu of fractional shares" and entered the transaction as a "Deposit" into the brokerage account. (This deposit may have already been downloaded from your brokerage account. Refer to step #2 above.)
Clicked on "Holdings"
Clicked on Micro Focus International stock in the security name list
Went up to the "Update" pull-down tab to download asset class and historical prices for Micro Focus International
Downloaded the Form 8937 as a PDF file and "Attached" it to the first "Removed shares" HPE transaction in the list of transactions for 9/1/2017 for future reference
and decided I better share this with others, as I have benefitted from what others have shared in the past!

HPE has now published Form 8937. See: http://investors.hpe.com/~/media/Files/H/HP-Enterprise-IR/documents/seattle-6045b-statement-26092017...

Using Quicken 2017, I did the following steps to record the spinoff:
Made a Quicken Backup File entitled "Before Micro Focus Spinoff"

From the "Security List" (under "Tools" on main menu bar), I made sure that MFGP or Micro Focus International security was deleted. If you already downloaded stock information or transactions from your brokerage company website, you will need to delete it (with the exception of the "cash in lieu of fractional shares" small deposit, as it comes in handy for the last step #22 below).

Opened the brokerage account register pertaining to the HPE shares

Clicked on the "Enter Transaction" tab

Used the "Corporate Securities Spin-Off" transaction function, entering in data from #6 - #12 below

Entered a "Transaction Date" of 9/1/2017

Selected the "Security name" for HPE from the pull-down tab

Entered the "New Company" as Micro Focus International

Entered the "New shares issued" as 0.13732611

Entered the "Cost per old share" as 14.22

Entered the "Cost per new share" as 29.34

Entered in memo "Nontaxable spin-off on 9/1/2017"

Clicked on "Enter/Done" tab

Waited a while (several minutes in my case) for the process to complete

Clicked on "Holdings" tab to note the total number of new shares of Micro Focus International and RECORD only the additional fractional shares. (for example, note 10.125 total new shares, RECORD 0.125 additional fractional shares).

Clicked on the "Enter Transaction" tab

Used the "Remove Shares" transaction function, entering in data from #18 - #21 below

Entered a "Transaction Date" of 9/1/2017

Selected the "Security name" for Micro Focus International from the pull-down tab

Entered the "Number of shares" as the additional fractional shares I RECORDED in step #15 above

Entered in memo "cash in lieu of fractional shares at spin-off"

Went to my brokerage company website to see the small deposit for "cash in lieu of fractional shares" and entered the transaction as a "Deposit" into the brokerage account. (This deposit may have already been downloaded from your brokerage account. Refer to step #2 above.)

Clicked on "Holdings"

Clicked on Micro Focus International stock in the security name list

Went up to the "Update" pull-down tab to download asset class and historical prices for Micro Focus International
Downloaded the Form 8937 as a PDF file and "Attached" it to the first "Removed shares" HPE transaction in the list of transactions for 9/1/2017 for future reference
and decided I better share this with others, as I have benefitted from what others have shared in the past!

I appreciate your extended detailed description of your process.

One difference I would see -- while you see the disposal of the fractional share as a Remove Shares process, I would treat that as a Shares Sold process. I think you will find that at the end of the year your broker will report that as a 1099-B transaction to the IRS.

Also, FWIW, I would not choose to attach the 8937 form to the Quicken transaction. I am just not a fan of that overall process. I would prefer to have the form stored independent of Quicken.

HPE has now published Form 8937. See: http://investors.hpe.com/~/media/Files/H/HP-Enterprise-IR/documents/seattle-6045b-statement-26092017...

Using Quicken 2017, I did the following steps to record the spinoff:
Made a Quicken Backup File entitled "Before Micro Focus Spinoff"

From the "Security List" (under "Tools" on main menu bar), I made sure that MFGP or Micro Focus International security was deleted. If you already downloaded stock information or transactions from your brokerage company website, you will need to delete it (with the exception of the "cash in lieu of fractional shares" small deposit, as it comes in handy for the last step #22 below).

Opened the brokerage account register pertaining to the HPE shares

Clicked on the "Enter Transaction" tab

Used the "Corporate Securities Spin-Off" transaction function, entering in data from #6 - #12 below

Entered a "Transaction Date" of 9/1/2017

Selected the "Security name" for HPE from the pull-down tab

Entered the "New Company" as Micro Focus International

Entered the "New shares issued" as 0.13732611

Entered the "Cost per old share" as 14.22

Entered the "Cost per new share" as 29.34

Entered in memo "Nontaxable spin-off on 9/1/2017"

Clicked on "Enter/Done" tab

Waited a while (several minutes in my case) for the process to complete

Clicked on "Holdings" tab to note the total number of new shares of Micro Focus International and RECORD only the additional fractional shares. (for example, note 10.125 total new shares, RECORD 0.125 additional fractional shares).

Clicked on the "Enter Transaction" tab

Used the "Remove Shares" transaction function, entering in data from #18 - #21 below

Entered a "Transaction Date" of 9/1/2017

Selected the "Security name" for Micro Focus International from the pull-down tab

Entered the "Number of shares" as the additional fractional shares I RECORDED in step #15 above

Entered in memo "cash in lieu of fractional shares at spin-off"

Went to my brokerage company website to see the small deposit for "cash in lieu of fractional shares" and entered the transaction as a "Deposit" into the brokerage account. (This deposit may have already been downloaded from your brokerage account. Refer to step #2 above.)

Clicked on "Holdings"

Clicked on Micro Focus International stock in the security name list

Went up to the "Update" pull-down tab to download asset class and historical prices for Micro Focus International
Downloaded the Form 8937 as a PDF file and "Attached" it to the first "Removed shares" HPE transaction in the list of transactions for 9/1/2017 for future reference
and decided I better share this with others, as I have benefitted from what others have shared in the past!

Yes, thanks for pointing that out.

@David Walker Thanks for the example. I think there is an issue with categorizing the merge portion of the deal as non-taxable. It appears to be subject to gains because of section 367(a)(1) - Does anyone know how to determine the possible gain (but not loss) on the merger portion of the deal?

Having trouble reconciling this merger in Quicken. The 8937 MFGP states that there will be a "gain" through this merger due to section 367(a). Using qlurker's example above, the value of MFGP after the merger was $18.248/share. However, my brokerage assigned a cost basis of $29.305/share for all lots. Do I recognize a "gain" of $11/share. So, would I "sell" the current MFGP lots at $29.305/share (to recognize the gain), then "add" the MFGP lots back at a cost basis of $29.305/share

Having trouble reconciling this merger in Quicken. The 8937 MFGP states that there will be a "gain" through this merger due to section 367(a). Using qlurker's example above, the value of MFGP after the merger was $18.248/share. However, my brokerage assigned a cost basis of $29.305/share for all lots. Do I recognize a "gain" of $11/share. So, would I "sell" the current MFGP lots at $29.305/share (to recognize the gain), then "add" the MFGP lots back at a cost basis of $29.305/share

I share your confusion. I don't understand the source of the increased basis -- the 367(a) provisions and interpretation or the manner in which the brokerages are computing the gain or increased basis.

That being said, your proposal would seem to make sense. You are first getting the MPFG shares to the lower basis, excluding the gain. Then selling the MPFG shares for the $29.305/share would accrue a taxable gain to you. Finally, buying back the MPFG shares for the same $29.305 would establish that as a new holding (new acquisition date for next cap gains consideration) with the increased basis.

Note that what I just outlined was a Buy rather than an Add for the last step. That took up the cash produced by the sale.

Numbers: That is not the right use of the $18.248 value.

If you look at the 8937 form data cited above, you'll see HPE presenting the case for 100 shares of HPE held at a cost of $10/share. Using their methodology, they get to the shareholder then having 100 shares of HPE @ 7.79/share ($779.20; 79.92%) and 13.732611 shares of MFPG at $16.04/share ($220.80; 22.08%). The 79.92% and 22.08% breakdowns are definitive based on their assumed fair market values. The dollar values then adjust based on your applicable basis - evaluated on a lot-by-lot process.

Thus, I see that you would

execute (in Quicken 2017) a spin-off using those fair market values, getting the 79.92 / 22.08% basis allocation,
(insert an intermediate step if you had a fractional share of HPE)
then sell the fractional share of MFPG for cash-in-lieu received
then sell balance of MFPG shares for broker-established new basis ($29.305/share in this case, John Kobayashi)
then buy back the same number of MFPG shares for that same 'new basis' ($29.305/share, John Kobayashi)

Your (John's) gain/share would be the 29.305 - 16.04 = $13.255/share if starting with HPE shares at a $10/share basis. Undoubtedly, his basis is different than that.

Hope that helps
(and note my prior caveat on my lack of qualifications)

Having trouble reconciling this merger in Quicken. The 8937 MFGP states that there will be a "gain" through this merger due to section 367(a). Using qlurker's example above, the value of MFGP after the merger was $18.248/share. However, my brokerage assigned a cost basis of $29.305/share for all lots. Do I recognize a "gain" of $11/share. So, would I "sell" the current MFGP lots at $29.305/share (to recognize the gain), then "add" the MFGP lots back at a cost basis of $29.305/share

Thanks. Been trying to sort this out on Excel spreadsheets before making all the transactions in Quicken. I have multiple HPE lots with different share basis (via div. reinvest), therefore the $$/share of the MFPG lots will vary from the example given in the HPE 8937. Thus, have to figure out "gain/loss" for each separate lot. However, if I understand this 367(a) provision, I can only recognize a "gain" and not any loss?? Plus, I cannot "net" the lots together to come up with a net gain??

To add to my frustration:

1) I have HPE lots going as far back as 1998, so I must sort through the HPE/HPQ cost basis (52.8%/47.2%) cost basis split, then go through the HPE/DXC (75.1%/24.9%) cost basis split, and then the HPE/MFGP (77.92/22.08) cost basis split.

2) My brokerage doesn't seem to be using the Form 8937 "avg open/close on opening day" FMV definition. They seem to be using a "avg hi/lo on opening trading day" (or some hybrid) to come up with their FMV definition when trying to match up their cost basis calculations to Quicken's. So, I must eventually choose the Form 8937 definition and accept a difference in cost basis between Quicken and my brokerage, or match up my Quicken transactions to my brokerage's cost basis (using some unknown definition of how they figure FMV) because that is what my brokerage will report to the IRS.

Not expecting an answer here, just venting........

Having trouble reconciling this merger in Quicken. The 8937 MFGP states that there will be a "gain" through this merger due to section 367(a). Using qlurker's example above, the value of MFGP after the merger was $18.248/share. However, my brokerage assigned a cost basis of $29.305/share for all lots. Do I recognize a "gain" of $11/share. So, would I "sell" the current MFGP lots at $29.305/share (to recognize the gain), then "add" the MFGP lots back at a cost basis of $29.305/share

First off, I think you are wise to think through this to begin with via Excel or any other tool.

If you had the HPQ/HPE spinoff followed by the HPE/DXC spinoff all in Quicken, I would think you would have the correct starting basis values for this current exercise.

From there, given your DivReinv activities, you may need to do an intermediate 1:1 spinoff of "Seattle" (77.92% HPE / 22.08% "Seattle" using ) so that you can then sell the fractional share of "Seattle" for the applicable cash-in-lieu received with the applicable gain or loss for that fractional share.

Then, thinking out loud, you could go with a Corporate Acquisition whereby MFPG acquires the "Seattle" shares. At that point your MFPG shares would have the 22.08% of the lot-by-lot bases that your HPE shares had maintained, except for the sold fractional share. The 0.13732611 share ratio would apply in the Corp Acq transaction

Next step would be to sell the resulting fractional share of MPFG for the cash-in-lieu from that part of the deal.

Now you should have all lots of MFPG with an initial valid basis and the correct acquisition dates. On to the Sales and Buys.

You can set up to sell all the shares of MFPG at $29.305/share (if that is the right value). When you choose to specify lots, you'll see which lots have a gain (cost less than 29.305) and those that have a loss (cost greater than 29.305). Choose the 'gain' lots and adjust down the total number of shares to sell to match.

Then your Buy back that same number of shares at the $29.305 price to reset the basis for those shares. I suspect you get those shares as currently short-term holdings, i.e., bought in September 2017.

So while working out numbers in Excel is the right start, I don't think you'll need to do a lot of manual entry in Quicken.

Example Summary
Start with 105.345 shares of HPE (multiple lots)
Spinoff yields 105.345 shares of "Seattle"  (multiple lots)
Sell 0.345 shares of Seattle
MFPG acquires Seattle at 0.13732611 on 105 >>> 14.419 MFPG shares  (multiple lots)
Sell 0.419 MFPG shares
Sell portion of 14 MFPG shares (those lots yielding a net gain) @ 29.305
Buy same portion @ 29.305 getting you back to 14 shares MFPG

Your final lots of MFPG will show one larger lot at no gain, and (presumably) several smaller lots with losses.

Having trouble reconciling this merger in Quicken. The 8937 MFGP states that there will be a "gain" through this merger due to section 367(a). Using qlurker's example above, the value of MFGP after the merger was $18.248/share. However, my brokerage assigned a cost basis of $29.305/share for all lots. Do I recognize a "gain" of $11/share. So, would I "sell" the current MFGP lots at $29.305/share (to recognize the gain), then "add" the MFGP lots back at a cost basis of $29.305/share

Thanks. Looked at this again. Looks like my brokerage assigned the original lot date of the HPE shares to the new MFGP shares. So, after adding the MFGP lots at the 22% cost basis, selling the fractional shares, then "selling" those gainable lots at $29.305, I'll have to "buy" back those same lots at the original date @ $29.305.

Having trouble reconciling this merger in Quicken. The 8937 MFGP states that there will be a "gain" through this merger due to section 367(a). Using qlurker's example above, the value of MFGP after the merger was $18.248/share. However, my brokerage assigned a cost basis of $29.305/share for all lots. Do I recognize a "gain" of $11/share. So, would I "sell" the current MFGP lots at $29.305/share (to recognize the gain), then "add" the MFGP lots back at a cost basis of $29.305/share

Looks like my brokerage assigned the original lot date of the HPE shares to the new MFGP shares.

Do the MFGP shares have some with a basis of 29.305 and others with a higher basis? Are they reporting any capital gains attributable to either the HPE or MFGP shares other than what would be associated with the fractional shares?

I'll have to "buy" back those same lots at the original date @ $29.305.

It can be tough or confusing to buy back those shares at the original date. Basically, your cash won't balance from then until now and your net worth over time gets mangled. What you can do is:

Buy back the shares current time,
Remove those same shares, and
Add Shares - same shares, current time transaction date, but original Acquisition date

But first I would double check with the tax-savvy folks at the brokerage to make sure those shares for which you are reporting a gain still carry forward with their original acquisition date.

Having trouble reconciling this merger in Quicken. The 8937 MFGP states that there will be a "gain" through this merger due to section 367(a). Using qlurker's example above, the value of MFGP after the merger was $18.248/share. However, my brokerage assigned a cost basis of $29.305/share for all lots. Do I recognize a "gain" of $11/share. So, would I "sell" the current MFGP lots at $29.305/share (to recognize the gain), then "add" the MFGP lots back at a cost basis of $29.305/share

"Do the MFGP shares have some with a basis of 29.305 and others with a higher basis?"

Yes, there are a few lots that have a basis of $32-$34 / share (assumed to be lots with a loss that cannot be recognized for tax purposes). All of the other lots (with an assumable gain) have been assigned a basis around $29.305 (give or take a few .001).

Are they reporting any capital gains attributable to either the HPE or MFGP shares other than what would be associated with the fractional shares?

To date, it looks like they are reporting only the CG attributable to the fractional share sale only (listed as a long-term gain/loss based on the FIFO sale of the first lot date). If my brokerage "bought" the shares after the merger and then sold the fractional share, it should have been reported as a short term gain sale??. So, the tax saavy people at the brokerage have looked at this and said there is no mistake on their part regarding reporting original acquisition date.

So, to summarize this thread, will try the "add MGFP @ 22.08% cost basis valuation of HPE spinoff > sell MGFP gainable lots @ 29.305 (to realize unreported gain) >buy back MGFP @ 29.305 > remove MGFP lots >add MGFP lots back at current time date/ original Acquision lot date > sell fractional shares" method. Whew!!!

Thanks

Geobrick

This was one of the stranger spinoff/acquisitions I've ever had to figure out. I usually rely on costbasis.com for figuring out these things so I can compare it to how the brokerage handled it but for this situation, they're only calculating the Seattle spinoff portion of the transaction.

Instead, I just followed how it was handled in my Merrill Lynch statement and 1099-B. They seem to have used the basis ratio shown in the HPE documentation (77.92% to HPE and 22.08% to Seattle). My statement after the event show the new basis for HPE to be just that, 77.92% of the pre-transaction HPE basis. That's pretty straight forward.

There was nothing on the September 2017 statement about Seattle at all. I only saw something later when I got my 1099-B. The 1099-B shows a Capital Gain associated with selling all the Seattle Shares. The cost basis shown matches the 22.08% of the pre-transaction HPE basis. The proceeds received for that sale match the statement basis shown for Micro Focus (before the fractional share was sold off) though the Micro Focus transaction in the September statement was treated as shares added to the account with a "DIV" transaction (it doesn't appear as a taxable dividend on the 1099-DIV).

The way I entered it in Quicken to match the Merrill Lynch statements was:
1) Removed all HPE shares (I only have a single lot).
2) Added the HPE shares back at the new basis (.7792*the old basis) with the original acquisition date.
3) Added Seattle shares with a basis of .2208*the old HPE basis and the original acquisition date.
4) Sold the Seattle shares for the amount shown on my 1099-B (~$4.03 per share).
5) Used the proceeds of the Seattle shares to buy Micro Focus (0.13732611*(# of Shares of Seattle)).
6) Used a remove and add transaction (2 separate steps) to adjust the acquired date of Micro Focus to the original HP acquired date.
7) Sold the fractional Share of Micro Focus.

I hope I captured that correctly.
Now my quicken data matches what Merrill shows in their statement and 1099.

Lampatrick

I agree that it is a very strange spinoff/acquisition that I have never encountered before.

I received the 1099-B that shows a Capital Gain associated with selling all the Seattle Shares. When I checked the statement from HP Enterprise, it says:

"As a result, you generally do not recognize gain or loss for U.S. federal income tax purposes on receipt of the Seattle Class A common stock in the Distribution, but U.S. shareholders will be required to recognize gain (but not loss) on the exchange of their Seattle Class A common stock for Micro Focus ADSs. In addition, if you received cash in lieu of fractional shares, you may recognize taxable gain or loss as described below."

So here is my understanding (I am not an accountant though):

The spinoff of Seattle from HPE is non-taxable, just like HPQ/HPE and HPE/DXC spinoff.

However, the conversion of the Seattle Class A common stock to the Micro Focus is "taxable". i.e. we need to report it as Capital Gain on the 1040 when selling the Seattle stock. i.e. proceeds from the sale of Seattle minus the cost basis (22.08%). It would be a long-term Capital gain if you have the stock for over a year.

When getting the Micro Focus stock, it was actually a BUY transaction on 9/1/2017. So the acquired date would be 9/1/2017 as it was a BUY transaction that took place on 9/1/2017. I don't think we can use the original HP acquired date for Micro Focus stock.

That basically is my understanding and unfortunately, this spinoff triggered a taxable capital gain that resulted in additional tax to uncle Sam.

Geobrick

If your broker shows the Micro Focus transaction as a "buy" what do they show for the acquired date on your statements or for the fractional share sale? I think we can still use the original HP date since it was an acquisition of an HP derived stock. In my case, Merrill Lynch shows the old date for Micro Focus in my statements (though it never showed a buy transaction.

Lampatrick

My broker just showed Micro Focus shares being added, instead of a BUY transaction.

So if you use the original HP date as the acquired date for the Micro Focus, would you use the proceeds from the sale of the Seattle stock as the cost basis for Micro Focus, since that proceeds is taxable and needs to pay the tax in 2017 tax return. i.e. you will would not use the cost basis of the Seattle stock as the cost basis for Micro Focus, otherwise you will be paying double tax when you sell Micro Focus eventually. Maybe that should be the correct way to record it for tax purpose. i.e. use the original HP acquired date as the acquired date of Micro Focus, and the cost basis equals to the proceeds of the sale of Seattle stock. Am I correct?

Geobrick

That would typically be the case for selling a Stock then buying another. The merger portion of this transaction has tax implications that are unique to it and arranged prior to the deal. I can't pretend to know how that was all worked out so I'm trusting Merrill Lynch handled it properly.

I entered the sale of Seattle (and will pay tax on the Seattle proceeds less the basis (the 22.08% of HPE)). Then I entered the buy of Micro Focus with the a total cost equal to the proceeds of the sale of Seatle (no cash will remain in the account after entering the transactions except from the CIL of the fractional share). That amount is now the basis for the Micro Focus Shares. We're essentially taking our gains now on the Seattle portion of the HPE spinoff, keeping the other portion (77.92%) with HPE then establishing a new basis for the Micro Focus shares. If you sold the Micro Focus shares immediately after the merger, you'd essentially have no gain (proceeds = cost).

The 'conservation of cost basis' rule* remains because when you add the basis of the remaining HPE shares with the basis of the Micro Focus shares (fractional share included), it will equal the original HPE cost basis.

* I'm not sure if there's really such a rule or if it goes by that name but it's a good way to verify you've handled a transaction correctly. The cost basis of all the new pieces will equal the cost basis of the original whole.

I hold HPE stocks with 2 brokers. I reported the capital gains in my 1099-B and the other didn't. What do I do with the one that didn't report? The cost basis of the one that didn't report is also incorrect.

I hold HPE stocks with 2 brokers. I reported the capital gains in my 1099-B and the other didn't. What do I do with the one that didn't report? The cost basis of the one that didn't report is also incorrect.

You yell at the one that didn't to tell them to straighten out their data.

Now if your basis goes back far enough, the brokerage may not be required to report the actual gains. They may only be required to report he gross proceeds. Did they at least do that?

I hold HPE stocks with 2 brokers. I reported the capital gains in my 1099-B and the other didn't. What do I do with the one that didn't report? The cost basis of the one that didn't report is also incorrect.

No, they didn't report the transaction. The stock was purchased only 2 years ago. So it's fairly recent.

I hold HPE stocks with 2 brokers. I reported the capital gains in my 1099-B and the other didn't. What do I do with the one that didn't report? The cost basis of the one that didn't report is also incorrect.

For a stock bought 2 years ago and sold in 2017, the brokerage should be reporting both the sale amount and the realized gain/loss on that sale.

Because HPE spun off some of itself to MicroFocus in 2017, and assuming your sale of HPE was after that spinoff, your basis for the sold HPE shares is likely less that the price you paid for the shares two years ago.

costbasistools.com Spinoff calculator for MicroFocus may be helpful to you. I have always found their data to be very reliable.

deckmm

I hold HPE stocks with 2 brokers. I reported the capital gains in my 1099-B and the other didn't. What do I do with the one that didn't report? The cost basis of the one that didn't report is also incorrect.

Bill, is any of your HP stock in a retirement account? You won't get a 1099-B for that.

deckmm

To try to bring this all
together for anyone who hasn’t been paying attention, on Sep 1, 2017, there was
a nontaxable “distribution” (spin-off) of capital from HPE to Seattle Spin Co;
followed immediately by a taxable “merger”
between Seattle Spin Co and Micro Focus (which comes through to those of us in
the US as an ADS). Everything you need
to know – including figures used in calculations below -- is described (in
legalese) in the Form 8937 for this transaction, available here: http://investors.hpe.com/~/media/Files/H/HP-Enterprise-IR/documents/seattle-6045b-statement-26092017.pdf.

Entering the distribution in
Quicken is pretty straightforward. After
long, difficult consideration and trying things in Quicken to see what's up, I
concur with Patrick (and others): For the taxable piece of this (the merger),
you need a sell and a buy.

Quicken does funky things with
rounding and such, so – while it is only off by pennies – I prefer to do all my
math in Excel and then make Quicken match the Excel math exactly (so I don’t
have to resolve the penny-wise differences).
If you’re particular like me, I suggest that you do the same.

Your broker may not have
accurate basis for HPE up to this point (will not if you’ve held your HP for a
while). If your 1099-B indicates that
basis is available but not reported to the IRS, you must track basis that on
your own (and if your broker does report it, I’d double-check them, anyway).

Assuming that your basis is
correct for each lot in Quicken to begin with (which is a chore all on its
own), and noting that I'm on QDW2017r15:

(Apologies for the image; this requires more levels of nesting than are supported on this forum.)

I hope this is useful! Apologies in advance for any errors.....

-- Mary

I am not a financial
planner, tax adviser, or other financial professional.

All statements are my own and should be taken with a grain of salt.