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

q_lurker

Rick8 said:

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!!!!!!!!!!!!!

There is no need to yell.  What I offered is a workaround using tools that are available until they get it right.

Q_comm_red

q_lurker

Nice work on the work around.

Is there an underlying issue with the IRR calculation?

It seems to me that the remove/add shares is not being recognized by IRR, given that the date range for the IRR includes the remove/add shares. I would think IRR should 1.) offset the original cost basis on the original date. (remove shares) 2.) insert the new cost basis and date. (add shares).

Tom Young

@quicken_comm_red

"1.) offset the original cost basis on the original date. (remove shares) 2.) insert the new cost basis and date. (add shares). "

That would be a proper presentation and result in the correct IRR for the Account itself.

Or you could not present them at all in the IRR calc, similar to how Quicken handles a RienvDiv.  The underlying programmatic problem to this approach might come down to Quicken not having a way to "remember" that the Remove and Adds are all part of one transaction with no cash flow implications.

Q_comm_red

Tom Young

"That would be a proper presentation and result in the correct IRR for the Account itself."

I am not sure what you mean by "Account itself". Seems like whatever accounts were selected for the IRR calc would include the remove/add shares.

I don't think IRR has to 'remember' as it would enter offsetting transactions as additional cash flow entries: remove shares would add inflow equal to original basis and the add shares would add cash outflow, both new entries would be added on the date of the original basis. (for each lot).

If this a discussion you wish to continue, I would welcome that but, maybe it should be off this thread that is focused on the PFE/VTRS spinoff.

q_lurker

@Tom Young, @Q_comm_red, et al. -- I would invite more general discussion about the spinoff actions to take place in this thread:  
https://community.quicken.com/discussion/7882806/corporate-spinoff-in-r29-9-and-later-editions#latest.

Q_comm_red

@q_lurker , @"Tom Young"

I'll join you in referenced thread:
https://community.quicken.com/discussion/7882806/corporate-spinoff-in-r29-9-and-later-editions#latest

Since1996

RtmCap / Bought / Bought / Sold = Success

For my single lot Pfizer case, with no reinvesting dividends, I did something different in this case.

What I care about is my cost basis matching what the broker claims it to be.

After getting the percentages of 94.8% and 5.2% from Form 8937, I calculated the cost basis for Pfizer and Viatris. They did not match what the broker decided they were after all the broker transactions were done for this spin-off.

So I did the following instead:

1) I started with a zero cash balance in this Quicken account.

2) I did a RtmCap for Pfizer transaction ending up with the new Pfizer cost basis matching the broker's. The reduction amount came from the difference between the Pfizer cost basis before the spin-off transactions started and from when the broker's spin-off transactions ended.

3) With the new cash balance I bought the whole shares of Viatris distributed by the broker. The Total Cost was the broker's cost basis of Viatris and I let Quicken calculate the price per share of the transaction.

4) With the remaining cash balance, I bought a fractional share of Viatris the broker said I had. The Total Cost was the remaining cash balance and I let Quicken calculate the price per share of the transaction. My cash balance returned to zero.

5) Then I sold the Viatris fractional share for the cash-in-lieu of fractional share Cash the broker said I got. I put that number in the Total Sale and I let Quicken calculate the price per share.

Because of tax reporting, I resolved this in favor of how the broker will report this to the IRS. Now the broker and Quicken match.

P.S.

Why did the percentages from Form 8937 not work? The broker further reduced the cost basis of Pfizer and Viatris and assigned it to the cost basis of the fractional share of Viatris that was sold. The reductions did not match the ratio between Pfizer and Viatris and appeared arbitrary. Realize I did not need Form 8937 to do the above procedure.

If I choose to sell the rest of Viatris, I will remember it's a long-term capital gain for me, even if Quicken does not.

q_lurker

@Since1996
I suppose, Whatever works for you is applicable.  The primary drawback I see is that you are relying on you to remember the Viatris holding is really a long-term holding even if you sell within the year.  

 Why did the percentages from Form 8937 not work? 

Neither you nor the broker are bound by the Form 8937 data.  "Everyone" is free to choose their own valuation of the Fair Market Value of both securities immediately after the spinoff.  Thus different percentages can be determined.  Now likewise if asked to justify those values, that becomes the investor's responsibility as well.  I would still expect your broker's values/percentages to be 'close' to the Form 8937 data.     

Q_comm_red

I use a spreadsheet to compute the all the numbers using form 7987 and then go to broker statement and if within a dollar or so I use the brokers numbers instead the form 8937. I use the remove shares, add shares, sell fractional share method so that the tax summary report is correct for fractional shares and when stock(s) is(are) sold. When sale occurs, the form 1099 from broker will provide cost basis to IRS. I don't plan on challenging the difference between brokers numbers and form 7987 for a dollar or so.

chipwhite935

The tricky part really is reconciling your Quicken ledger with your broker. My broker is Fidelity and they have a habit of doing the calculations their way, and not necessarily following the corporate recommendations found with Form-8937. So, in case anyone else might also use Fidelity, I will try to provide what I learned about the PFE -> VTRS spinoff:

I've noticed in the past that Fidelity typically uses closing prices to calculate the percentages of each post-spinoff stock. In this case, they used the closing prices for the day following the spinoff: 11/17/2020, which I found on BigCharts:
PFE: $36.04
VTRS: $16.34
This results in the following percentage allocations for each stock post-spinoff (notice that these differ from Form-8937):
PFE: 94.67%
VTRS: 5.33%
When I did my calculations using this information to compute the new cost basis, along with the divisor (0.124079) from Form-8937 to calculate the number of new VTRS shares, it matched what Fidelity provided.

I had 3 lots of PFE, so this was quite time consuming, but I used a spreadsheet to help with that. I did not use Quicken's wizard because it doesn't really handle spinoffs with multiple lots properly. Mainly, it consisted of:
SHARES OUT (Old PFE Shares)
SHARES IN (New PFE Shares)
SHARES IN (New VTRS Shares)
SELL (VTRS fractional Shares)