How do you handle the DOW spinoff from DWDP?

Walter@

DWDP just issued 1 share of DOW for every 3 shares of DWDP?   Anyone know how to handle this?

Rick Milton

I'm assuming that it is a corporate spinoff, but I'm waiting to hear from others on here, also.

Walter@

Yes, DWDP will eventually split up into 3 companies.   The first company is DOW and all DWDP stockholders received 1 share of DOW for every 3 shares of DWDP owned.  It seems to me that I should reduce my cost in DWDP by 1/3 and apply that to the cost of DOW.    I don't see any option for this in Quicken.   Your thoughts??

q_lurker

The Form 10 for this spinoff includes (page 179) this language:

• the aggregate tax basis of the shares of DowDuPont common stock and shares of Dow common stock in the hands of each DowDuPont stockholder immediately after the distribution (including any fractional shares deemed received, as discussed below) will be the same as the aggregate tax basis of the shares of DowDuPont common stock held by such holder immediately before the distribution, allocated between the shares of DowDuPont common stock and shares of Dow common stock (including any fractional shares deemed received) in proportion to their relative fair market values immediately following the distribution; 

What that means is that you look at the value of your two holdings immediately after the spinoff and allocate you prior cost basis in proportion to those values.  I would expect DWDP and/or Dow to issue a form 8937 detailing their thoughts on the matter, but that may be weeks away.  

In principle, you can look at the prices on 4/1 (or perhaps earlier).  I see closing prices of $36.50 for DWDP and $53.50 for Dow.  If you started with 3 shares of DWDP, after the spinoff you had 3 shares of DWDP at $36.50 ($109.50 FMV) and 1 share of Dow ($53.50 FMV) for a total value of $163.  The DWDP portion would be 109.50/163 = 67.18%; the Dow portion would be 53.50 / 163 = 32.82%.  Of your prior basis in DWDP, 67.18% would stay with it and 32.82% would transfer to Dow

That would be exactly what the Quicken' Corporate spinoff action should do for you on a lot by lot basis -- provided you feed it the right values.  The values I have just provided might be OK, but I don't guarantee them in any way.  Do your own due diligence.  I claim no expertise on these matters.  

Following that Corporate Spinoff, enter a Sell shares to sell off any fractional share of Dow generated by the action.  You sale proceeds will be the cash-in-lieu amount you receive.     

Rick Milton

Thanks for the help!

aquickuser

There is a website, http://www.costbasis.com , that has a spinoff calculator.  I have used it in the past to double check my numbers.

dewalker167

Thanks for these comments.  Will await Form 8937.

Frankx

Dow has posted Form 8937 and its attachment to its website - under "Investor Resources - Stockholder Information."

Frankx

Here's the relevant information to this discussion:

Line 16 - Describe the calculation of the change in basis and the data that supports the calculation, such as the market values of securities and the valuation dates.

The U.S. federal income tax laws provide that the allocation of the aggregate tax basis discussed under Line 15 above shall be allocated based on the fair market value of the resulting DowDuPont and Dow shares received. However, the tax law does not provide any further guidance on the determination of fair market value. One method to determine the fair market value is to use the average of the high and low trading prices of the DowDuPont and Dow common stock. The average of the high and low trading prices of DowDuPont common stock, and of Dow common stock on April 3, 2019 (the second trading day after the Spin-off) was $37.19 and $56.36, respectively. Using this as the fair market value, and the distribution ratio of one Dow share per each three (3) DowDuPont shares, the pre distribution tax basis in each DowDuPont share should be allocated 66.44% to that DowDuPont share and 33.56% to the Dow share (including any Dow fractional share) received with respect to that DowDuPont share

q_lurker

Links to the 8937 information are currently here:  https://investors.dow.com/en/investor-resources/stockholder-information/default.aspx

I am not sure why they chose the 4/3 date - second trading day after the Spin-off - but it doesn't seem to make much difference.

I suggest impacted Quicken users also coordinate with their brokers values, to a) make sure their broker's values are reasonable, and b) make sure their Quicken values are compatible with their broker's data, or vice-versa.  

tvicki

I do not have any fractional shares. I had (and still have) 531 shares of DowDuPont Inc. and I received 177 shares of Dow Inc. (531 shares divided by 3 = 177 shares)

I selected the Corporate Securities Spin-off.
For the "Security Name" I selected DowDuPont Inc.
For the "New Company" I entered Dow Inc.
For "New shares issued" I entered .333333
For "Cost per old share" I entered $37.19 (maybe I should have entered $37.185).
For "Cost per new share" I entered $56.36 (maybe I should have entered $56.355).

The result was that it Added 176.998 or something shares of Dow Inc and didn't round up to 177 (and that may be what made the cost basis off by 15 cents).
And the Cost Basis of Dow Inc was off by 15 cents.
The Cost Basis of DowDuPont Inc was also off by 15 cents (One was over and one was short. I forget which at this point).
 
I have the distinct recollection that in changing some transactions one needs to delete the most recent transactions back to what one wants to change and also that transaction and then enter the transactions correctly and in the correct order. HOWEVER I didn't do that --- I hope it doesn't backfire on me someday. Anyone know if it will in this case?
I edited the Add-Shares added transaction of the 177.998 something shares of Dow Inc to 177 shares. And I changed slightly the "Price paid per share" of Dow Inc that it had calculated to $17.719661 so that the cost would equal the correct amount of $3,136.38
And I edited the Add-Shares added transaction of the 531 DowDuPont Inc by slightly changing the "Price paid per share" to $11.693446 so that the cost would equal the correct amount of $6,209.22 

The $3,136.38 + $6,209.22 = $9,345.60 which was the Cost Basis of DowDupont Inc before the spin-off.
Also $9,345.60 x 33.56% is $3,136.38
And $9,345.60 x 66.44% is $6,209.22
Thus the correct figures are now showing in Quicken. It is just a question of if the figures will incorrectly change sometime in the future due to the manner in which I edited them. Any comments are welcome. Thanks.

tvicki

Oh, and yes it does match what my broker (Schwab) now has.

q_lurker

@tvicki:  I think the edits you made were appropriate and will not backfire on you in the future.  

tvicki

@q_lurker : Thank you!

tvicki

In reviewing some stuff I see that I used a Transaction Date of 5/1/2019 but it should have been 4/1/2019. I wonder if I can just change the date in the 3 transactions with out any adverse consequences now or in the future?
In other words change the "Added Shares" for Dow Inc from 5/1/19 to 4/1/19 --- it only has 1 transaction since then and it is a 6/14/19 dividend.
And change both the "Removed Shares" and the "Added Shares" for Dow DuPont Inc from 5/1/19 to 4/1/19 --- it has a past and it has 1 transaction since then and it is a 5/28/19 dividend. What do you think?

q_lurker

@tvicki. Yes you should be able to just change the dates. You might also check the related price history info. 

tvicki

@q_lurker Oh good! Thank you! And I will look at related price history info before and after changing date.

Geobrick

Can someone help me determine how Merrill Lynch handled the basis allocation for the DOW spin-off?

They clearly didn't use the 0.33562 and 0.66438 percentages used by costbasis.com and the example on the 8937. Based on the allocations on my statement, they seemed to have come up with 0.32469 (DOW) and 0.67530 (DWDP). I'm sure their method is valid but I just want to understand what method they used to determine the fair market value of each stock after the spinoff to arrive at their basis allocation percentages. I can find the historical pricing of DOW on 4/3/19 (Open: 57.08, High: 57.20, Low: 55.51, Close: 56.88, Avg (high/low) 56.355) but I can't find quotes for DWDP on that date that are in the range of the $37.19 avg (high/low) number used in the example on the 8937. I'm seeing quotes for DWDP in the $70s when I look up the historical quotes on and around 4/3/19. What am I missing?

tvicki

@Geobrick When I looked out in April at DWDP they had for April 3, 2019, Open: 36.77, High: 37.84, Low: 36.53, Close: 37.35. Thus Average = 37.84 + 36.53 = 74.37 and then 74.37 divided by 2 = 37.185 or rounded up to 37.19. I don't know where you can actually find these figures now as they have been recalculated with the June 1 Spin-off and/or w/the June 3 Reverse Split