Level 3 merger to Centurylink

Roger McCartney

How do I record the Level 3 merger in Quicken 2016 Home & Business.  This occurred on 11/1/2017.   

• I owned 100 shares of Level 3.  Cost Basis $4,644.25

• They exchanged each share of Level 3  for 1.4286 shares of CENTURYLINK INC.  (Giving me 142 shares)

• They also did a payout of $26.50 per share. ($2,650) 

• In addition  A cash payout of  $14.31  in Leu of fractional shares.  (They said the cost basis on the fractional shares was $25.08 for a $10.77 loss)

• My brokerage shows the cost basis on the 142 shares as $4,141.44.

Your help in posting this would be appreciated.

Thanks!

q_lurker

These comments reflect how these usually transpire.  I have not reviewed the prospectus info.  I am not a tax pro, guru, CPA, or otherwise qualified adviser.  Do your own due diligence.  

Thank you for the completeness of your information.  

Two reference documents for CTL (the second being more valuable):
http://ir.centurylink.com/Cache/1500105297.PDF?O=PDF&T=&Y=&D=&FID=1500105297&iid...
http://ir.centurylink.com/Cache/1001229999.PDF?O=PDF&T=&Y=&D=&FID=1001229999&iid...

Assuming your 100 shares were one lot.  

The closing value of CTL on 10/31/17 was 18.99/share.  This is the value CTL has used on their Form 8937 data.  1.4286 shares would be valued at 27.129.  So each share of Level 3 became for you $26.50 cash + 27.129 CTL value = $53.629.  (Others might use a value for CTL different than the 10/31 closing price.  It is essentially your choice.) 

Your gain on this deal was then 53.629 - 46.4425 = 9.1865 / share of Level 3, = $918.68 for the lot.

Since you had a gain (rather than a loss) but the gain ($918.65) is less than the cash received ($2650) only the $918.65 is treated as current year capital gains.

In Quicken, I would first back up my data, then:
a)  Sell the 100 Level 3 shares for your basis + the capital gains just computed -- Sell 100 shares for $5562.90.
b)  Buy 142.86 shares of CTL for an amount to leave the 26.50/share in your account.  -- Buy 142.86 shares for $2912.90 = 5562.90 - 2650.00.  Your cash balance in now $2650.00.
c)  Remove the 142.86 CTL Shares just bought (they have the wrong acquisition date at this point.)
d)  Add Shares 142.86 CTL with cost basis = 2912.90 and the same acquisition date as your original purchase of the Level 3 shares.
e)  Sell your fractional shares of CTL for cash in lieu. -- Sell 0.86 CTL for 14.31. 

I think your brokerage is wrong on the cost basis both for the 142 shares of CTL and for the fractional share sold.  These calculations are showing your cost basis as 2912.90 / 142.86 = $20.389/share.  

If you look at the examples on the second reference document, you are in between their two cases, but the principles are similar which is why your brokerage is wrong.  Even though the CTL approach treats the fractional share in a different sequence, I believe our two outcomes would be the same.  

Looking to their step 6F, they are showing case 1 with no gain and case 2 with all the cash as gain.  You are in-between those two.  

Then stepping down to 7D, they are computing new basis as Original Basis + Gain - Cash Received.  For you (by my calcs), that is 4644.25 + 918.65 - 2650.00 - 2912.90.  

Note for other readers: There are basically three categories here, depending on your basis of any lot of the Level 3 shares. 
--Basis < 27.129/share, 
------- Sell for basis + cash received (gain = cash received)
--Basis between 27.129 and 53.629/share, 
------- Sell for value received (53.629/share) (gain > 0, gain < cash received)
--Basis over 53.629/share
------- Sell for basis (no gain)
The other steps are similar and flow from that point.