How to have correct cost basis in a corporate spinoff, e.g., Pfizer/ Upjohn/ Mylan transaction?

A.R.

Everything I’ve read about how to handle a corporate spinoff in Quicken (Windows Premier subscription version — currently up to date with R. 29.22) doesn’t explain how to divide the cost basis correctly between the shares of the original company and the shares of the newly spun-off company. The ratio of how many shares of the new company — in this case, Viatris — to be received for each share of Pfizer has no bearing on the calculation of how to divide my cost basis in Pfizer — pre-spinoff — between the two companies, that is, the post-spinoff Pfizer and Viatris.

When a company does such a transaction, it files an IRS form that specifies how the original cost basis is to be split, and that’s what brokerage firms use to determine one’s cost basis in each of the two companies’ shares after the transaction closes. In the past I haven’t been able to figure out how to allocate the cost basis correctly in Quicken, and the result is that my cost basis in each of the companies involved in the spinoff doesn’t match what my brokerage accounts show.

For example, when an investor receives 1 share in the new company for each share of the pre-spinoff company, that doesn’t automatically mean that the cost basis is divided 50-50 between the two companies. And the closing prices of the two companies on the day the transaction is completed also have no bearing on the allocation of the cost basis between the two companies. (The allocation of the cost basis is generally determined by the original company’s accountants ahead of the closing, to enable the company to file the IRS form promptly and enable brokerage firms to correctly allocate the cost basis between the 2 now-separate companies.)

So, just how do I manage to get my Quicken records of the cost basis in each of the 2 companies’ shares, post-spinoff, to reflect the real cost-basis allocation determined by the company doing the spinoff — in this case, Pfizer?

This cost-basis allocation is important for tracking the post-spinoff investment performance of each of the 2 companies, but it’s also absolutely critical to having the correct costs for each individual lot of shares of the two companies for tax purposes (when one sells any of the shares.)

Tom Young

I've been following this on my phone, which is not conducive to responding due to my severe affliction of "fat fingers."

When I was a SuperUser over in the TurboTax community one of my "specialties" was "stock" questions and I've answered probably a hundred or more "What's my cost basis after this spinoff?" questions, using Form 8937 figures if I could find one for the particular spinoff under discussion.  I have never run across a Form 8937 in a spinoff situation that was issued prior to the spinoff occurring. 

That's not to say that a Form 8937 can't be issued before the event, I'm just pointing out that based on my experience a "pre-spinoff" Form 8937 isn't common.

Going back to your problem with having cost bases that don't match your broker's figures, I'm reasonably certain that the issue isn't that you've had a long string of spinoff's where the usual "split the old basis between the old and new stock based on FMV after the split occurs" doesn't apply. 

I'm left to wonder if the problem doesn't arise because of fractional shares and their omission - either by you or the broker - when it comes to the "post spinoff" valuation?