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How to handle IBM Corp spinoff of KD

RBElliott

I cannot get the Corp. Spinoff entry to give me the correct share and cash balance. I have 300 of IBM they spunoff a new company. Kyndryl (KD). I received one share of KD for every five shares of IBM (60 shares). Opening price for KD is 28.741. How should I enter this.

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Sherlock

RBElliott said:

I cannot get the Corp. Spinoff entry to give me the correct share and cash balance. I have 300 of IBM they spunoff a new company. Kyndryl (KD). I received one share of KD for every five shares of IBM (60 shares). Opening price for KD is 28.741. How should I enter this.

New shares issued per old share should be 0.2

q_lurker

RBElliott said:

I cannot get the Corp. Spinoff entry to give me the correct share and cash balance. I have 300 of IBM they spunoff a new company. Kyndryl (KD). I received one share of KD for every five shares of IBM (60 shares). Opening price for KD is 28.741. How should I enter this.

Correct according to what source? The number of shares should be clean = 300 IBM ---> 60 KD. What are you getting?
The spinoff process should not be generate any change in cash balance. What are you seeing that is changing the cash balance?

Are you familiar with the spinoff process - how the distribution of the cost basis is allocated? Fair market prices of both IBM and KD are necessary and the opening price may or may not be what your broker, IBM/KD, or someone else chooses to use for that allocation.

You might want to wait until you see cost basis numbers from your brokerage before going to far with this too quickly (assuming you want to match their figures). I would not rely on downloads from the brokerage to get this info right.

RBElliott

Okay I got it to record the correct cost and value of the KD shares. However it wouldn't let me use KD for the stock symbol as it already existed. I was able to get the correct balances by creating a scymbol xxx company and then selling that and buying KD. Thanks for the relpies.

q_lurker

If you do a Corporate Spinoff and don't like the results, in backing that out you also need to delete the security that was created. That is, the first time you attempted the spinoff, KD was created. The second time around, Quicken balks because the security already exists.

My avoidance technique (alternative to the initial deletion of the spinoff) is to spin off a second security (as you did), and then simply edit the spinoff Add Shares transactions to reflect the desired security.

As you did it, the KD shares will show an acquisition date of 'date of buy' rather than date of the IBM buy.

I suggest you delete the Sell and Buy and instead edit the spinoff created transactions accordingly.

slisaacs

I have tried a variety of methods but looking for anyone who may have done this including the transaction type (Corporate Spinoff seems the likely one) along with what to enter iin the fields such as stock prices. The spinoff is 0.2 shares of Kyndryl per share of IBM. Thanks in advance!

Frankx

Hi @slisaacs,

So this is the information that I think you'll need to record the spin. You need to use the "Corporate Securities Spin-Off" transaction type.

Image: https://us.v-cdn.net/6031128/uploads/editor/to/e8exmlomxoyh.png

The closing prices per share of both the Old and New shares (which are used for allocation purposes) are as of 11/4/21 - which is the date of the transaction. (NOTE - I made a typo above - the transaction date should be 11/4/21 - NOT 11/3/21

This will result in 4 lines of transactions in your Quicken register.

Let me know of you have any followups.

Frankx

q_lurker

Problem: The current Quicken approach for Corporate Spinoff is inaccurate for multi-lot holdings of the parent company. Specifically, the cost basis of the parent company lots after the spinoff are incorrect. This has been discussed before and is still incorrect. For a single lot holding, the numbers come out OK.

Other related discussions (These are rather long somewhat convoluted discussions to follow; feel free to skip them):
https://community.quicken.com/discussion/7882806/corporate-spinoff-in-r29-9-and-later-editions#latest
https://community.quicken.com/discussion/7883338/how-to-have-correct-cost-basis-in-a-corporate-spinoff-e-g-pfizer-upjohn-mylan-transaction/p1

Background: In QW R29.9, Quicken revised their approach to Corporate Spinoffs. The method since then has been to generate (1) RtrnCapX transaction, (1) MiscIncX transaction, and as many Add Shares transactions as necessary for the number of lots in the original parent holding.

The RtrnCapX is to reduce the basis in the parent holdings, basis that is 'transferred' to the new spinoff company.
The MiscIncX is to get the Investment Performance Report (IPR) and related average annual return figures right.
The Add Shares transactions create the holding in the spinoff company with the appropriate acquisition dates, number of shares, and basis. A new lot of the spinoff is created for each lot of the parent held at the time of the spinoff.

The process of handling a spinoff - independent of Quicken - is to determine the fair market values of the parent company and of the spinoff company immediately after the spinoff. Using those two values, the investor's basis in the original parent company is split proportionately to the two ongoing companies. Example: If after the spinoff, the parent company was valued at $80 and the spinoff at $20, 80% of the parent basis would stay with the parent and 20% would transfer to the spinoff. The IRS deems that procedure valid, but leaves it up to others (investors, brokerage houses, etc.) as to how to determine those fair market values.

In Quicken, the Corporate Spinoff actions asks the user for that type of information.

Image: https://us.v-cdn.net/6031128/uploads/editor/el/pfgcdboxugly.jpg

With those numbers, the FMV is IBM is determined as $120.85. The FMV of KD is determined as 0.2 * 26.38 = $5.276. So what had been one share of IBM with a basis of $X, is now one share of IBM and 0.2 shares of KD. Their current FMV totals to $126.126 with IBM representing 95.8% of that and KD 4.2%. Thus, the outcome of the spinoff should distribute basis FOR EACH LOT in those proportions.

I will note here that although Quicken uses the term "Closing price" in these prompts, that may not be the same value your broker uses. Thus, Quicken using those values may determine different cost basis allocation percentages that your brokerage determines.

EXAMPLE - PROOF OF PROBEM
As an example, I created a case where I owned three lots of IBM. One account owned 40 shares with a basis of $6000. A second account owned 40 shares in two lots - 30 shares with a basis of $4,800, and a 10 share lot with a basis of $1,200. I used the Corporate Spinoff action as shown above.

Being more precise with the numbers, the KD holdings in each account should get 4.183% of the IBM basis. The adjusted basis for the IBM lots become 95.817% of their prior value.

We should see::

40 shares IBM @ $6,000 >> 40 IBM @ $5,749.01 and 8 KD @ $250.99
30 shares IBM @ $4,800 >> 30 IBM @ $4,599.21 and 6 KD @ $200.79
10 shares IBM @ $1,200 >> 10 IBM @ $1,149.80 and 2 KD @ $ 50.20

What we actually end up with is:

Image: https://us.v-cdn.net/6031128/uploads/editor/1g/9af9b1ysjjj5.jpg

The info for the one lot in [Brokerage] is fine.

The basis values for the two lots in [Brokerage 2] are at $1,137.26 (not $1,149.80) and $4,611.78 (not $4,599.21). The totals are correct (at least within a penny) but not the individual values. Is the error significant? Only the individual user can answer that question.

I still have not found any way around this problem other than using Remove Shares / Add Shares transactions for both the parent and the spinoff.

There are also still outstanding questions on "Cost" values to use on the Quicken Corporate spinoff form.

Apologies if I am throwing wrenches into anyone's workings.

kayakor

I followed these directions (or at least I think I did). All did not go as I expected. But a bit of background. I have shares of IBM held by Computershare, and about the same number with Morgan Stanley. I executed this in the Computershare account. Quicken created about 140 'Added' entries for Kyndryl each with a unique number of shares, one 'MiscIncX for $282,698, and one XIn from Morgan Stanley along with a RtrnCapX transaction in the Morgan Stanley account for $20,209. All in all, about $200,000 of value more than I expected. I am lost. And I tried to delete one of the 'Added' transactions but Quicken ignored it.

q_lurker

@kayakor -- If you did a straightforward Corporate Spinoff action from the Enter Transactions button in the Computershare account, you should have gotten in that same account

(1) RtrnCapX
(1) MiscIncX
Add Share transactions for each lot of IBM that you had in that account.

If you got 140 such Add Shares, that would suggest you have been reinvesting dividends in that account for 35 years (unlikely?), or maybe buying through a payroll plan for 6 to 12 years (more likely?). Do you have about 140 lots of IBM in that account.

The dollar amount of RtrnCapX should be about 4.5% of the basis that you had in the IBM holding in that account.

The dollar amount for the MiscIncX transaction is harder to predict. I think it should be:

(Number of shares of KD rec'd x 26.38) - RtrnCapX value

(If you used a different value for the KD shares value in the form, substitute your value).

There should be no 'crossing' of the Morgan Stanley holding with the ComputerShare account holding. (In the one small test case I did with multiple accounts, that did not occur.) The Morgan Stanley transactions should be similar - RtrnCapX, MiscIncX, and Add Shares.

You should also be able to delete any and all of the Add Shares (and other) transactions. On-screen Delete button if you have those enabled, or Ctrl-D.

Cyclist

Recently had to book the spin-off of Kydryl (KD) from IBM. I understand the ROC (Return of Capital) transaction, but am having trouble seeing what the MiscIncX transaction is for. The tax basis of the original IBM shares gets allocated between the two stocks based on FMV. KD has released the IRS form 8937 indicating that IBM will get 95.8% of original basis, with the KD shares receiving 4.2%. The ROC transaction for IBM exactly equals the basis for the new KD shares (which would be expected), but doesn't explain the MiscIncX transaction. What gives rise to this transaction (categorized as _UnrlzdGain)?

Tom Young

About a year ago Quicken made this change from the old process of a Remove of the parent company stock and various Adds to reestablish lots of the parent company stock at its new basis and to establish lots for the child stock. This was done because the IRR calculation after a spin off was incorrect, due to a programming error in the IRR report. The _UnrlzdGain entry reflects the decrease in market value of the parent company stock, offset by the increase in market value of the new child stock.

The problem with this process is that Quicken is calculating the bases of the old shares incorrectly, not in total, but instead at the lot level. Also you have two transactions that simply don't exist in the real world, and, historically, RtrnCap transactions have been known to introduce error into the data base.

I continue to use the old Remove/Adds series of transactions for spin-offs, making my calculations outside of Quicken.

Cyclist

Thx Tom. I'm gonna have to go to Investopedia to see what the mathematical formula for IRR is. Is the correct way to do this as simple as using Remove Shares to remove the original IBM shares (on a lot by lot basis) and then using Add Shares (with original dates) with the "new" cost basis, and then using Add Shares (with the original IBM dates) for the spin-off company (KD in this case) and the apportioned original IBM tax basis? Seems this works as far as proper cost basis handling, though it's going to distort historical data (will look like you had KD shares in the past, prior to spin-off).

q_lurker

@cyclist Thanks for the Form 8937 note. Currently a link to that form can be found here:
https://www.ibm.com/investor/services/faqs-about-the-kyndryl-holdings-inc-distribution
Also, that form uses the closing prices on 11/4/21 as the fair market values for IBM ($120.85) and KD ($26.38) to arrive at the 95.8 / 4.2 percent levels. Using those values in Quicken will process through with more precise percentages. And to repeat myself, a brokerage house may also use different values yielding different percentages.

FWIW: I just posted an "Idea" to 'fix' the corporate spinoff action.
See https://community.quicken.com/discussion/7901982/fix-corporate-spinoff#latest

To explain the MiscIncX transaction, I need to explain the Investment Performance Report (IPR) Average Annual Return (AAR or IRR) process. That process which also applies to AAR values in portfolio views, basically considers the spinoff (KD) as return from the parent (IBM). It also considers the new presence of the spinoff in your portfolio an added investment. For that AAR calculation, the value of the "Investment" is the number of shares added times the closing price for the day added. The value on the "Return" side begins with the RtrnCapX value removed from the parent (IBM) investment. That cost basis was transferred to the spinoff cost basis. More is needed to get the return value to match the investment value. The MiscIncX transaction makes up that difference. It is the FMV of the spunoff shares less the basis of those shares.

Example: data from form 8937

Added Investment = KD shares x closing price = 10 x 26.38 ..... = $263.80
Basis Return component = IBM RtrnCapX= 4.2% x original basis . = $231.00
Fill in Return to make up difference = MiscIncX = 263.80 - 231. = $ 32.80

(a) Essentially, Quicken is presenting that $263.80 of IBM current value was spun off and transferred to KD, and that $231 of that was transfer of IBM basis to KD basis (RtrnCapX) and $32.80 was gains on the IBM shares that should now be seen as a gain on the KD shares (MiscIncX).
(b) If you enter that in Quicken, you will get slightly different numbers (230.07 and 33.72) because it is being more precise than the 4.2%.
(c) Quicken always seems to miss by a penny (230.07 + 33.72 = 262.79 <> 263.80. That baffles me.

My plans going forward -- Intent is to come out with correct basis and correct Average Annual Return

Use the current canned Corporate Spinoff action as a starting place.
Edit the RtrnCapX transaction such that the Market Value field is number of Added Shares * closing price of those shares (26.38 in this case for KD.)
Delete the MiscIncX transaction.
Enter a Remove Shares removing all Parent company shares (IBM). That needs to follow after the RtrnCapX transaction.
Enter Add Shares transactions for each lot of the Parent company with their correct basis.

IF you have lots of lots --- Steps 4 and 5 can be initialized by a Shares Transferred between Accounts action that transfers the Parent company shares to the same account. Then you are only faced with editing the basis value of each lot in the Add Shares transactions rather than creating those transactions from scratch.

I believe that will fundamentally produce the right basis and Average Annual Return figures going forward. There may be other 'return' figures that come out not so good (amount invested related values).

Amo1

q_lurker: I am hoping you can help me, as you appear to be one of the sharpest folks out there. I am trying to capture the correct information for the IBM/KD spinoff. I have tried to use the Corporate Spinoff functionality several times, unsuccessfully. While it gives me the correct total cost basis for the IBM shares (I have about 8 lots), the value by lot is not correct. With regards to the KD shares, the total is not correct, which I believe is complicated because of a CIL of transaction. I use Fidelity so I have access to the actual cost basis data they are using, but I cannot get Quicken to match this data. I have spent hours on this, and am just looking for a simple solution. Any suggestions would be greatly appreciated. Thank you!

q_lurker

Amo1 said:

q_lurker: … I am trying to capture the correct information for the IBM/KD spinoff. I have tried to use the Corporate Spinoff functionality several times, unsuccessfully. While it gives me the correct total cost basis for the IBM shares (I have about 8 lots), the value by lot is not correct. With regards to the KD shares, the total is not correct, which I believe is complicated because of a CIL of transaction. I use Fidelity so I have access to the actual cost basis data they are using, but I cannot get Quicken to match this data. I have spent hours on this, and am just looking for a simple solution. Any suggestions would be greatly appreciated. Thank you!

IBM lots - you are seeing the known error = right total, wrong by lot. More on that below.

KD shares - certainly the CIL may be the issue. Different FIs handle those differently. In Quicken, the by lot numbers are correct IF —-

the two post spin-off prices are similarly ‘correct’, and
you realize you are seeing the valuations before the CIL transaction is considered.

Quicken treats the spin-off as distributing the fractional share the requiring a separate sale of the fractional share for the cash-in-lieu amount. That then leads to the question of which lots do the fractional shares come from.

In your case, the easy solution for the KD shares is to edit each of the 8 Add Shares transactions of KD shares to match your post-CIL Fidelity info. All that will miss is the small amount of cap gains associated with the CIL sale. Your Fidelity 1099B should provide that info.

(There are some other ways to get that represented if you do desire. )

The other consequence at that stage is the Average Annual Return (Investment Performance Report) will be slightly out of balance. That too can be worked around but I would need specific numbers to detail the workaround.

Back to the IBM shares lot basis values - Clearly there is no absolute. The real world cases I have been able to see, the values were not too far off. Maybe $70 on one $1000 lot. But every situation is going to be unique. So one option is to be aware and live with it.

My option to fix it would be “next day” meaning day after the spin-off, enter a Shares Transferred transaction that transfers all IBM shares from this account to this (same) account. Then edit the 8 Add Shares IBM to have them reflect the correct cost basis.

Hope this helps to move you forward.