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

13

Answers

  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    "Maybe it has been written somewhere above, but I understand the basis of everything after the split should be equal to Pfizer's basis before the split."
    The split-second after the spin off occurs your understanding is correct.  You own "X" number of shares of the spun off stock, including the fractional share. But most spin offs don't actually deposit the fractional share in your account.  Instead, all of the fractional shares issued to all stockholders are gathered together and sold in the open market and you receive, as Cash in Lieu, (CIL) the proceeds from the sale of your fraction, sometimes several days after the spin off occurs.
    As far as I know no brokers report the CIL as "proceeds from the sale of the fractional stock you received", but that's usually exactly what it is, and that's the correct accounting, as well as the correct income tax reporting.  (Probably most folks simply report the CIL as some sort of "income" on their income tax return.)
    So you pretend you received the fractional share, and then you sell the fractional share with the CIL as the proceeds of the sale.
    I know that Schwab used FIFO in determining which lot to use as the source of the fractional share.
  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    splasher said:
    Maybe it has been written somewhere above, but I understand the basis of everything after the split should be equal to Pfizer's basis before the split.
    But, the cash you get in lieu of the partial Viatris share, is it part of the basis of Viatris?
     
    At the point where you have taken in all the Viatris shares (0.124079 x your PFE share count), the before and after basis should match.  Then you sell the fractional share produced by the 0.124079 ratio for the cash in lieu amount.  That will reduce your total basis by some small amount.  Is that the $8.79 amount?

    If you received $10.56 cash-in-lieu for fractional shares that had a basis of $8.79, you had a cap gain of $1.77.  Now that the 10.56 is in the account as all cash, that amount has a new basis of $10.56.

    PFE Basis >> PFE + VRTS Basis
    VTRS Basis reduced by 8.79 on sale of fractional share / Cash basis increased by 8.79
    VTRS cap gain of 1.77 incurred on sale of fractional sale / Cash Basis increased by 1.77.

    The cash-in-lieu sale converted some basis from VTRS to cash and also converted some unrealized gain to realized gain as cash.

    I'm thinking everything is lining up as it should.     
  • splasher
    splasher SuperUser ✭✭✭✭
    Now I understand the difference between the two numbers.  I had forgotten that whichever lot they took the fraction from  (turns out to be the initial purchase), it had some gain and so, the 10.56 was part basis and part gain.
    Now, whether EJ will only count the difference, the $1.77, as profit and the $8.79 as non-profit basis will be something I'll never be able to positively confirm come tax time, but I'll see if I can find it.
    Thanks to all in this split endeavor, I think I have it recorded properly since I reverted to R28.28 and there were all the Viatris lots created to match up with what EJ has in their system.

    -splasher  using Q since 1996 -  Subscription  -  Win10
    -also older versions as needed for testing
    -Questions? Check out the  Quicken Windows FAQ list
  • Rick Milton
    Rick Milton Member ✭✭
    Some had posted a screen shot of the Corporate Securities Spinoff Screen in which he had posted all the information was filled in. It worked perfectly and I went back on here to THANK HIM so much, but could not find the post. I wish that would happen more often -- I don't know if it was taken down or removed, but it was very helpful! I can try to summarize here - go to Corporate Security Spinoff. Security Name is Pfizer, New Company is Viatris, New Shares issued: .12408; Cost per old share: 36.04; Cost per new share: 16.34. You can memo it as Pfizer spin-off to Viatris and the Transaction Date is 11/17/2020. I hope that helps someone else! Sorry I can't provide the screen shot!
  • splasher
    splasher SuperUser ✭✭✭✭
    Some had posted a screen shot of the Corporate Securities Spinoff Screen in which he had posted all the information was filled in. It worked perfectly and I went back on here to THANK HIM so much, but could not find the post. I wish that would happen more often -- I don't know if it was taken down or removed, but it was very helpful! I can try to summarize here - go to Corporate Security Spinoff. Security Name is Pfizer, New Company is Viatris, New Shares issued: .12408; Cost per old share: 36.04; Cost per new share: 16.34. You can memo it as Pfizer spin-off to Viatris and the Transaction Date is 11/17/2020. I hope that helps someone else! Sorry I can't provide the screen shot!
    CORRECTION: The shares issued was 0.124079, not .12408, just so that someone else doesn't read your post and use the wrong number.
    -splasher  using Q since 1996 -  Subscription  -  Win10
    -also older versions as needed for testing
    -Questions? Check out the  Quicken Windows FAQ list
  • mshiggins
    mshiggins SuperUser ✭✭✭✭✭
    Some had posted a screen shot of the Corporate Securities Spinoff Screen in which he had posted all the information was filled in. It worked perfectly and I went back on here to THANK HIM so much, but could not find the post. I wish that would happen more often -- I don't know if it was taken down or removed, but it was very helpful! I can try to summarize here - go to Corporate Security Spinoff. Security Name is Pfizer, New Company is Viatris, New Shares issued: .12408; Cost per old share: 36.04; Cost per new share: 16.34. You can memo it as Pfizer spin-off to Viatris and the Transaction Date is 11/17/2020. I hope that helps someone else! Sorry I can't provide the screen shot!
    I believe this is the post you were referring to.  The screenshot is an attachment.

    https://community.quicken.com/discussion/comment/20132709/#Comment_20132709

    Quicken user since Q1999. Currently using QW2017.
    Questions? Check out the  Quicken Windows FAQ list
  • Rick8
    Rick8 Member ✭✭✭
    Rick Milton,
    Thanks for the tip.  It was at the bottom of page 1 of this thread.
    Did this work for Schwab?  It didn't for me.  I tried it with .12408 and .124079 and both the cost basis for PFE and VTRS were calculated by Quicken incorrectly. I called Schwab and they say they use 37.40 and 15.755 for the prices.  Quicken also does not calculate this correctly. 
  • Rick8
    Rick8 Member ✭✭✭
    Splasher,
    Did QW R28.28 use the remove/add method or the new Return of Capital method? Thanks.
  • Rick8
    Rick8 Member ✭✭✭
    Does anyone know the last QW revision that used the remove/add method for Cost Basis calculations?

  • Dbrault
    Dbrault Member ✭✭
    > @splasher said:
    > When I did the "Corporate Securities Spin-Off",  Quicken generated a RtnCapX transaction, an Added Viatris transaction for every lot of Pfizer with a basis which when totaled across all of the adds was equal to the RtnCapX transaction.
    > If it did anything different, I would do a Quicken Restore and try it again.  
    > This time, make a screenshot of the spin-off transaction prior to executing it so that you can show us exactly what you entered.

    @spalsher... I do not see the RtnCapX transaction. I have seen in this in the past on other company spinoffs but for some reason, not on this one. Only see Remove and Add shares. I did what you suggested...restored and tried again with the same result. Below is screen shot of what I entered.
  • Dbrault
    Dbrault Member ✭✭
    > @Tom Young said:
    > The highlighted sentence suggests that the spinoff wizard did things correctly, but obviously it did not.  The numbers you entered should have resulted in approximately 95% of the old basis remaining with Pfizer and approximately 5% of the old basis assigned to Viatris.  So it sounds like something like (95% x 2) of the old basis is now showing up in the Pfizer shares and 5% of the old basis is assigned to Viatris?It doesn't appear that you did any thing wrong but maybe you did.  There's lots of thing you might try.  The first thing you might try is to simply delete the new entries entered by the spinoff wizard and try again.  Or, if you just used the wizard yesterday, perhaps restore a backup just before the entry, validate the file, including rebuilding investing lots, and try again. 
    > Just recently Quicken changed how the spinoff wizard worked for the US subscription versions and I'm not sure if this change has affected the Canadian versions as well.  In the new approach to spinoffs Quicken makes 2 entries for each lot, one of which is a RtrnCap entry and a MiscInc entry.  Is this what you are seeing in your version?

    @Tom Young... When Quicken performed the spinoff, it first removed all the Pfizer shares ( but not the costs associated with it) and then made 2 entries for each lot. But it was not the RtrnCap, miscinc entry. Just an ad shares for Pfizer and an ad shares for Viatris using around 95%/5% split ratio. The result of this added to my cost basis by $5585.47. When I look at my portfolio view ... my original cost basis before the spinoff was $5899.30 and after the spinoff was $11484.77. It should be $5585.47 which is the total I get from the spinoff. Why it added these 2 together I don't know.
  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    Rick8 said:
    Does anyone know the last QW revision that used the remove/add method for Cost Basis calculations?

    R29.9 introduced the method with RtrnCapX/MiscIncX/Add Shares.  Any 'recent' version prior to R29 should be using the Remove Shares / Add Shares method.  I don't have info on the last R28.xx version.  Much older program versions (c. 2016 and before?) used a backdated approach with RtrnCap and Buy Shares transactions.  
  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    Dbrault said:
    ...

    @Tom Young... When Quicken performed the spinoff, it first removed all the Pfizer shares ( but not the costs associated with it) and then made 2 entries for each lot. But it was not the RtrnCap, miscinc entry. Just an ad shares for Pfizer and an ad shares for Viatris using around 95%/5% split ratio. The result of this added to my cost basis by $5585.47. When I look at my portfolio view ... my original cost basis before the spinoff was $5899.30 and after the spinoff was $11484.77. It should be $5585.47 which is the total I get from the spinoff. Why it added these 2 together I don't know.
    @Dbrault Please make sure you are not confusing Cost Basis with Amount Invested.  With the Remove Shares / Add Shares approach prior to R29.9, the Amount Invested likely did increase as you noted.  The Cost Basis should not have.  
  • splasher
    splasher SuperUser ✭✭✭✭
    Rick8 said:
    Splasher,
    Did QW R28.28 use the remove/add method or the new Return of Capital method? Thanks.
    Yes, it does a 100% remove of Pfizer and generates mating Pfizer / Viatris transactions for each original Pfizer lot.

    Someone else stated earlier that R28.28 was the last, but I have not confirmed that.
    I just reverted to R28.28 using the saved R28.28 patch ( I save all of them ).  You can get it at Quicken Patches.
    -splasher  using Q since 1996 -  Subscription  -  Win10
    -also older versions as needed for testing
    -Questions? Check out the  Quicken Windows FAQ list
  • Dbrault
    Dbrault Member ✭✭
    @q-lurker... thank you for the help...in my portfolio view and holdings view, this is what I see. see screen shot. The amount invested was $5899.30.
  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    "When Quicken performed the spinoff, it first removed all the Pfizer shares ( but not the costs associated with it) and then made 2 entries for each lot. But it was not the RtrnCap, miscinc entry. Just an ad shares for Pfizer and an ad shares for Viatris using around 95%/5% split ratio. The result of this added to my cost basis by $5585.47. When I look at my portfolio view ... my original cost basis before the spinoff was $5899.30 and after the spinoff was $11484.77. It should be $5585.47 which is the total I get from the spinoff. Why it added these 2 together I don't know."


    A Remove action should delete the shares and their associated basis.  Have you tried deleting that Remove transaction and then entering your own Remove action, making sure you specify the full amount of Pfizer stock, to see if that changes the results?


  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    Dbrault said:
    @q-lurker... thank you for the help...in my portfolio view and holdings view, this is what I see. see screen shot. The amount invested was $5899.30.
    Can you clarify this statement?
    When Quicken performed the spinoff, it first removed all the Pfizer shares ( but not the costs associated with it) 
    Removing all the shares would have been the correct step for that method.  What do you mean by "(but not the costs...)"?  Is that a reference to the Cost Basis increasing to $11,521.27 (your screenshot value)?

    Using the portfolio view as of date, can you confirm what the Pfizer cost basis was before and after the spinoff transactions?



  • Dbrault
    Dbrault Member ✭✭
    > @Tom Young said:
    > @Dbrault "When Quicken performed the spinoff, it first removed all the Pfizer
    > shares ( but not the costs associated with it) and then made 2 entries
    > for each lot. But it was not the RtrnCap, miscinc entry. Just an ad
    > shares for Pfizer and an ad shares for Viatris using around 95%/5% split
    > ratio. The result of this added to my cost basis by $5585.47. When I
    > look at my portfolio view ... my original cost basis before the spinoff
    > was $5899.30 and after the spinoff was $11484.77. It should be $5585.47
    > which is the total I get from the spinoff. Why it added these 2 together
    > I don't know."
    >
    > A Remove action
    > should delete the shares and their associated basis.  Have you tried
    > deleting that Remove transaction and then entering your own Remove
    > action, making sure you specify the full amount of Pfizer stock, to see
    > if that changes the results?

    @ Tom Young... I have tried to delete that transaction and perform my own remove transaction with no luck. It actually does not prompt me to ad the value or the full amount of the stock. It just removes the shares but keeps the associated basis.

    I have done spinoff transactions before....earlier this year with Brookfield Infrastructure and Brookfield Renewable with no issues. It used the same remove and add shares process. The only difference I see is that when it removed the shares, it also removed the associated basis. The Brookfield stocks were located in an investment brokerage account in Quicken. My Pfizer stock is in a different type of account....an investment retirement account. Why it is not handling the spinoff the same way in the retirement account is puzzling.
  • Dbrault
    Dbrault Member ✭✭
    > @q_lurker said:
    > Can you clarify this statement?

    In the previous post you mentioned that maybe I was confusing the cost basis with amount invested.... I was simply stating that the total amount I invested in Pfizer was $5899.30.

    > Removing all the shares would have been the correct step for that method.  What do you mean by "(but not the costs...)"?  Is that a reference to the Cost Basis increasing to $11,521.27 (your screenshot value)?

    When Quicken remove the shares, it did not remove the cost basis. In previous spinoffs, when a remove share transaction was processed, I would see the shares being removed and the an associated cost in the Inv.Amt field. (ex. -5899.30) In this case. But, this did not happen. The Inv. Amt field is blank.

    > Using the portfolio view as of date, can you confirm what the Pfizer cost basis was before and after the spinoff transactions?

    I performed this on Nov 18th. On the 17th my costs basis was $5899.30. After spinoff on Nov 18th $11484.77.
  • Dbrault
    Dbrault Member ✭✭
    I just confirmed that Quicken is handling a corporate spinoff differently in Investment account types. (In Canadian edition anyway) I created a dummy security. Bought the dummy security and performed the spinoff (using same number as Pfizer spinoff) and it processed correctly in the brokerage investment type account. Cost basis correct. Performed same dummy transactions as above in the investment retirement type account and it did not process properly and cost basis doubled again. There must be a reason why it is processing these spinoffs differently in the retirement type account. I will have to contact Quicken support to see what they think and maybe have it fixed.
  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    I tried a spin off in a 401(k) file and it worked like it should, reducing the old stock's basis.  This does seem to be a Canadian edition bug.

  • Jim_Harman
    Jim_Harman SuperUser ✭✭✭✭✭
    Was your dummy security set to "Use average cost" and was there more than one lot of the security?

    There are problems with the similar Mutual Fund Conversion action when "Use average cost" is selected and multiple lots are involved. 
    QWin Premier subscription
  • Rick8
    Rick8 Member ✭✭✭
    Those with Schwab Accounts:
    Below are the prices I entered for the Pfizer/Viatris Spin-Off.

    These work perfectly for those using QWR28.28 USA Version and lower. 
    These use the "older method" of Replace/Add for the new transactions.
    If your cost basis transactions (buys & re-investments) already agreed with Schwab before the spin-off, the new ones will agree after as well.  (I had to change 2 of around 250 transactions, each by .01 to have it agree 100%).

    If you use these prices for QWR29.xx USA Versions; the "newer method" of RtrnCapX/MiscIncX/AddShares is used.  The Cost Basis Totals for PFE and VTRS will agree with Schwab, as will the individual cost basis transactions for VTRS. 
    The cost basis transactions for PFE WILL NOT, as these later versions of QW do not calculate this correctly.




  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    q_lurker said:
    @Rick8 The older method had some issues with the Average Annual Return calculation, but I think those could have been resolved with a less dramatic change. 

    Since I don't really use Quicken's metrics and haven't had a spin off in years, until this one came along, I need you to refresh my memory.
    The IRR calc for an Account with a spin off in the subscription version clearly was wrong and that's what prompted this new RtrnCapX, MiscIncX sequence in R29.XX.  But did the old Remove/Add sequence also cause IRR issues?  Since the entries for the IRR calc were offsetting, effectively making it as if they never occurred, the IRR calc should for an Account should be correct.  What were the problems in that calculation?
  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    @Tom Young  See our Lounge discussion titled "Bug: Subscription product calculates the wrong IRR in a spin-off situation"

    Yes, the prior Remove/Add pairings understated the IRR.  The entries ended up not offsetting since the FMV of the removed stock was based on the closing price of the parent after the spinoff.
  • miklk
    miklk SuperUser, Windows Beta Beta
    PS Pfizer has form 8937 for cost basis guidance online if anyone needs for assistance
    https://investors.pfizer.com/viatris-transaction/default.aspx
  • Dbrault
    Dbrault Member ✭✭
    > @Jim_Harman said:
    > Was your dummy security set to "Use average cost" and was there more than one lot of the security?
    >
    > There are problems with the similar Mutual Fund Conversion action when "Use average cost" is selected and multiple lots are involved. 

    No. There was only one lot of the security.
  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    edited December 2020
    Yes the spin off situation certainly misstated the IRR in the subscription product, but I was thinking about product versions that used the Remove/Add actions.  If the Remove/Add actions are consistently "priced" - Remove and Adds both using cost basis - then the IRR would be unaffected, but you're saying the Remove used cost basis but the Adds used FMV?  That would certainly mess things up.
    Since I had no spin offs I just never saw the spin off wizard in action.

  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    So I have taken the position that the new procedures for the spinoff action (since R29.9) are not adequate.  What follows is my offering as to what the user can do to overcome the shortcoming.  I am being rather verbose in this write to anticipate as much as I can.  For single lot holding, the current process seems tp work OK.  It is multi-lot holdings where the problems arise.

    The fundamental approach I am getting to is to get back to use a pairing of Remove Shares and Add Shares.  In the real world, some users will have already started some of these steps or taken other steps that may need to be undone or redone. 

    STEP (1) Decide on prices and percentages you want to use.  There is a fixed relationship between values.  The share ratio (SR) is fixed and agreed upon as 0.124079.  That the percents (%PFE, %VTRS) to PFE and VTRS add to 1.000 is also a given.  From there ---

    If the two prices are known (such as the 35.3869 and 15.66 used in the Form 8937 data from Pfizer), then %PFE = $PFE / ($PFE + SR * $VTRS) and  %VTRS = 1 - %PFE. 

    If the two percentages are know (such as based on the Schwab information as 0.94773/0.05227), then the user needs to pick a price for PFE or VTRS and compute the other.  
    $VTRS = (%VTRS / %PFE) * ($PFE /  SR) 
    OR  
    $PFE = (%PFE / %VTRS) * SR * $VTRS

    End if Step 1, you will have five key values
    SR = 0.124079
    $PFE = something in the $35 range
    $VTRS = something in the upper $15 range
    %PFE = something just under 95%
    %VTRS = something just over 5%

    STEP (2)  Take note of the basis of all lots of PFE in all applicable accounts.  You can use a portfolio view grouped by account showing cost basis expanded to present all lots as of 11/15/2020.  This is mostly for information and cross-checking as you move forward.

    STEP (3)  Execute the canned Corporate Spinoff action.  Doing so in one account will do so in all applicable accounts.  Use the SR and fair market values established in Step (1).  Though not all generated transactions are proper, the Add Shares for the new Viatris shares are correct. 

    STEP (4)  Take note of the basis of all lots of VRTS in all applicable accounts.  You can use a portfolio view grouped by account showing cost basis expanded to present all lots as of 11/16/2020.  As with (2), this is mostly for information and cross-checking as you move forward.

    STEP (5)  You can now assign the VTRS ticker to the Viatris security (Edit Security Details) established by Step (3).  You can also update the quotes to get the full available price history for VTRS.  You may what to also check and edit the closing value for 11/16/2020.  You should see it as a downloaded value of 15.855.  It may be desirable to edit that to the value used in step (1), but I also think the 15.855 value is acceptable.  (See more at Step 11).

    FOR EACH APPLICABLE ACCOUNT -- steps 6 through 9
    STEP (6)  Delete the RtrnCapX transaction.  This is the most improper of the newly generated transactions.

    STEP (7)  Execute a Shares Transferred between Accounts transaction.  Transfer all shares of PFE to the same account.  If the account is [Brokerage], set the transfer account also as [Brokerage].  This step will generate the Remove Shares and for each lot of PFE held in this account, the Add Shares transaction.  Each Add Shares will have the right share quantity and Acquisition date and the original basis of that share.

    STEP (8)  Edit each Add Shares transaction generated in Step (7) changing the basis of that lot.  Here is where the Step (1) or Step (4) data can be very helpful.  The Cost Basis field has the original basis.  You want that value to be a percent of the original value (94.8%, maybe from Step 1) or you want it as the original value less what was transferred to that Viatris lot (Step 4 data).  In editing that field, you can use the calculator icon to adjust the value -- $xxx * 0.948 or $xxx - $vtrs -- or simply type in the proper value if you have computed it separately.  I found better more consistent results subtracting the Step (4) results rather than multiplying by the percentage. 

    STEP (9)  Once you have edited the applicable Add Shares transactions, check that the cost basis information matches correctly before and after the spinoff (11/15 vs 11/16).  Portfolio views are a good way as in steps 2 and 4.  Make any corrections as needed.

    STEP (10)  Generate an Investment Performance Report customized to both securities and all applicable accounts, subtotaled by Account. 

    STEP (11)  Edit the MiscIncX transaction in each account.  The 'correct' value is the fair market value of the Viatris shares for 11/16/20.  That can be arrived at by adding the entries on the Investment Performance Report (my preference) or by looking at the value in a portfolio view for 11/16/20.  (For some unidentified reason, I consistently see a discrepancy of a few cents between those two approaches.)

    STEP (12)  Review the updated Investment Performance Report to confirm that the "Returns" match the "Investments" with respect to these two securities on 11/16/2020. 

    Once all the above is complete, you can sell off the fractional shares generated in each account for the cash-in-lieu amount received.

    CLOSING COMMENTS -- The prior generation of Corporate spinoff transactions (Remove Shares / Add Shares) did have a problem with the Investment performance Report and likely other calculation of Average Annual Return (aka IRR).  I believe the Step (11) process would cure that discrepancy just as it s used here. 

    That MiscIncX 'income' transaction is generated as assigned to the category "_UnrlzdGains".  That is inaccurate as used herein, but I have not tried to identify a better category at this time.

    More than enough for now.  Good luck to all.
  • Rick8
    Rick8 Member ✭✭✭

    q_lurker

    Your analysis is great.  But it really gets down to SHOULD WE HAVE TO DO ALL THIS WHEN WE ARE PAYING FOR A PROGRAM THAT SHOULD DO THIS SEAMLESSLY!!!!!!!!!!!!!
Sign In or Register to comment.