Accounting for ATT WBD Spin Off

jimshu1

Megapixels18 said:

@jimshu1

Thank you very much for the detailed reply. I'm going to give it another try on my secondary system. No, I have not accepted my brokerage downloads for either account. Nor had I saved the previous data file that I experimented with. So, I'm starting fresh.

Besides using the wrong price points for both stocks in the Corporate Spinoff Wizard, I also ran it separately for each account. Obviously, that's why I had duplicated WBD entries in Holdings.

Thanks again!

jimshu1

Megapixels18,

Thanks! It worked great. Everything reconciled.

I guess the biggest unknown on future spin-offs is the prices to use in the Corporate Spin-Off Wizard.

Megapixels18

@jimshu1

Well, when there’s a corporate transaction such as this one, the company doing the spinoff has to file IRS Form 8937 within 45 days after the closing of the transaction. Sometimes companies are quicker about providing this information on their websites, and some are slower (or don’t post it at all). I had previously sent a message to AT&T’s investor relations department to inquire about the cost basis allocation, and the reply said that the information will be posted on the company’s website when Form 8937 is filed. They didn’t say when that might be . . . For those of us who want the answer sooner, we could do these experiments with different dollar amounts to use for the FMV in the Corporate Spinoff Wizard to see which one results in numbers that match the brokerage firm’s cost-basis numbers.

Greggo07

I hold AT&T in two Schwab accounts, Brokerage and IRA. About an hour after the close of trading on 4/11 I did a one step update and saw a new transaction in each account for a deposit of WBDWV, but there was no share amount or share price. After checking and seeing that AT&T spun off Discover, I found the Corporate Spinoff option and was going to run that with the cost for the old share, AT&T, (closing price per share on the day of the spinoff) and the cost for the new share, WBDWV, (closing price per share on the day of the spinoff). However I didn't have the new shares issued: per old share value. I logged into Schwab and within the Brokerage and Rollover IRA accounts noted that the shares of AT&T in both matched what was in my corresponding Quicken accounts. I also noted in Schwab the share amounts of WBDWV in both accounts. I decided to manually add these WBDWV shares to each account in Quicken; it was straightforward to do this. Once done I entered the closing price of WBDWV at the end of trading on 4/11; the total dollar amounts in my Brokerage and Rollover IRA accounts in Quicken matched those in Schwab. I thought I had taken care of this spin off but at the end of trading the next day after doing a one step update I noticed that the dollar amounts in my Brokerage and IRA accounts in Schwab did not match those downloaded into Quicken. It turns out that the WBDWV share price was not updated in the one step update. Once I manually updated the closing share price in Quicken, the dollar amounts in my Brokerage and IRA accounts in Schwab again matched those in Quicken. The same thing has happened the last two days as well, the WBDWV share price is not being updated during one step updates in Quicken resulting in small Brokerage and Rollover IRA account balance differences between what's in Schwab and what's downloaded into Quicken. I've had to manually update the closing share price of WBDWV to get the balances to match.

From talking to Schwab reps they say that it is a 3rd party service provider of Quicken's that provides share price information in the updates. Has anyone else noticed that the WBDWV share price does not update in Quicken? I talked to Quicken Tier I support but only got a commitment to escalate this to the next level.

Ted Gallagher

.
>
> From talking to Schwab reps they say that it is a 3rd party service provider of Quicken's that provides share price information in the updates. Has anyone else noticed that the WBDWV share price does not update in Quicken? I talked to Quicken Tier I support but only got a commitment to escalate this to the next level.

What if you delete WBDWV from the quicken security list, then from your investing screen click on the new security, click "edit details" and then use "lookup" to change it to WBD? I did that and it seems to be behaving.

bmciance

From the beginning I have used just WBD and it has updated fine.  I would replace WBDWV with WBD and delete WBDWV

cheez1950

> @q_lurker said:
> @"Leon Pink"
> With 100+ lots, you'll have a decision to make -- just how important is it to you to have the correct basis for each lot?  If it is important enough ... 
>
> a) Backup your file
> b) Decide on the correct fair market values to use.
> c) Independently determine correct adjusted basis for each of your 100+ T lots.  (approx. 76% of it's prior basis)
> d) Do the Corporate Spinoff (the Adds for the WBD lots should come out correct)
> e) Delete the RtrnCapX generated by the spinoff
> f) Do a Shares Transferred of the T shares from this account to this same account.  (you'll get the 100+ Add shares transactions you need with the correct share quantity and acquisition date in place)
> g) Edit each of those 100+ Add shares to reflect the correct adjusted (76%) basis.
> h) Check the final results.  In the end, you should have one Remove Shares (T), and per lot - one Add Shares of T and one Add Shares of WBD.  
>
> To all users, the share ratio of 0.241917 will undoubtedly generate a fractional share of WBD which you will not receive.  Instead, you will receive a 'cash-in-lieu' amount.  In Quicken, you need to sell that fractional share for that cash-in-lieu amount as a final step.
>
> I would also take the step of editing the WBD Add Share transactions to tweak the share quantity for each lot to my desired level of precision (I choose three digits after the decimal point typically, you might prefer 3, 4, or maybe even 5).  I believe this then avoids share quantity roundoff issues later in the life of the holding.         

Nice write-up! This works! For those looking to take this approach and are unable to agree the WBD beginning cost basis, after the Corporate Spinoff has completed its process, verify the RtnCapX non taxable entry which summarizes the initial WBD cost basis for the applicable layers moved from ATT. If this balance is materially different from your brokerage statement, adjust both the Cost per old share (ATT)and Cost per new share (WBD) to the price at settlement date from your brokerage Company's closing price data at your broker's settlement date. My experience has shown in some cases small differences between closing prices between online sources likely stemming from the sourcing of data.

cheez1950

Nice write-up! This works! For those looking to take this approach and are unable to agree the WBD beginning cost basis, after the Corporate Spinoff has completed its process, verify the RtnCapX non taxable entry which summarizes the initial WBD cost basis for the applicable layers moved from ATT. If this balance is materially different from your brokerage statement, adjust both the Cost per old share (ATT)and Cost per new share (WBD) to the price at settlement date from your brokerage Company's closing price data at your broker's settlement date. My experience has shown in some cases small differences between closing prices between online sources likely stemming from the sourcing of data.

q_lurker

@Greggo07
I believe the WBDWV was for 'when issued' securities - essentially buyers trying to get a head start (at a discount?) on owning the spinoff with transactions before the 11th.  That is (apparently) what Schwab created for you (incorrectly I suggest).  On the 11th and later, WBD became the ticker for the security actually trading.  I suspect you could simply change the ticker from WBDWV to WBD.  Edit Security Details.

Greggo07

q_lurker, thanks for the straightforward suggestion. I edited the security name to WBD. The only remaining issue is that the account balances in Schwab are slightly different from those downloaded into Quicken; in one case by $0.41 more and the other by $0.07 more. Yet the closing share prices on 4/14 for WBD are the same in Schwab and in Quicken as well as the Market values.

What difference in Quicken is there between using the Corporate Spinoff transaction to add the shares of WBD and just adding the shares of WBD that Schwab showed was added to my Brokerage and Rollover IRA accounts?

q_lurker

Greggo07 said:

… 

What difference in Quicken is there between using the Corporate Spinoff transaction to add the shares of WBD and just adding the shares of WBD that Schwab showed was added to my Brokerage and Rollover IRA accounts?

In principle, none. But in many cases the download from the FI may not be on a per lot breakdown (only one Add) whereas Quicken will generate an Add for each lot. Also, the FI version frequently does not contain the basis information or the acquisition date for the lot(s).  The Quicken process will include that info. 

You are certainly free to edit the Quicken transactions to bring them into balance with the brokerage data if you are sure their data is more correct. 

BTW, I had suggested editing the Security TICKER, not the security name, but I think that must be what you meant and did. 

Greggo07

I just this morning observed why the account balances in Schwab were slightly different from those downloaded into Quicken; in one case by $0.41 more and the other by $0.07 more. These small additional amounts in my Schwab accounts were due to small interest additions that while showing in the Schwab account balances over the weekend were not accounted for by any transaction. Interest deposit transactions for these amounts showed up this morning in each Schwab account and were downloaded into my corresponding Quicken accounts when I did a one step update.

In my particular case a simply manual add of the WBD shares to both accounts in Quicken gives the correct market value of the shares in each account.

DRMick

I also did a simple manual 'add shares' of WBD and a deposit of the cash-in-lieu into my IRA account. It worked and I don't need to account for costs of each lot in a non taxable account.

jwlent55

I think much of the problem is a bug in the Quicken Spinoff algorithm. I have 7 AT&T lots to process. My brokerage firm (E*Trade) allocated about 76.148% of the old cost basis to each of the 7 AT&T lot (i.e. reduces each existing tax lots basis) and the remaining 23.852% to each of the 7 new WBD tax lots.

To try to reproduce this in Quicken I first calculated a new and an old stock price that should generate this same result by fixing the old share price (ATT&T) at $10 and calculating a WBD price that would generate the desired cost basis split. In my case I used $12.94792 for the new stock price. I don't think the magnitude of these two values impact the cost basis split. It is the ratio that determines the cost basis split (along with the share spinoff ratio of 0.241917).

Using these values I was able to generate 7 updated AT&T tax lots and 7 new WBD tax lots. Except for the oldest WBD tax lot, the Quicken WBD tax lot numbers matched the brokerage numbers to within $0.01. The oldest WBD lot includes the fractional sale share that my brokerage has not yet reported to me. The updated AT&T cost basis numbers were not the same. They varied from about -$40 to +$60. The total across all 7 lots was OK (-$0.04).

I then tried to determine what algorithm Quicken was using to update (reduce) the AT&T cost basis numbers. It appears to allocate the new AT&T cost basis not in proportion to the old cost basis of each lot but by the number of shares in each lot. Using this approach I was able to reproduce the Quicken AT&T numbers to within $0.01.

This seems like a bad algorithm. For one thing it means that the total of the new AT&T cost basis plus the WBD cost basis does not sum to the old AT&T cost basis when you look at each lot in isolation.

To illustrate this I create a fake brokerage account and a very simple example that removes a lot of the complexity:

- Start with $20,000
- Buy 500 shares of "Old Company" for $20 / share (cost basis $10,000)
- Later Buy 250 shares of "Old Company" for $40 / share (cost basis $10,000)
- Later Spinoff "New Company" 1:1 with both having a stock price of $25 after the spinoff.

In this scenario I would expect that 50% of the original cost basis would remain with the "Old Company" and 50% would move to the "New Company" for each tax lot. Instead what Quicken does is:

- As expected allocate $5,000 each of the two "New Company" tax lots (for a total of $10,000).
- However it allocated 1/3 of the updated "Old Company" cost basis ($3,333.33) to the first (20 share) tax lot and 2/3 of the updated "Old Company" cost basis ($6,666.67) to the second (40 share) tax lot. In other words the cost basis is allocated based on 20 shares / 60 shares and 40 shares / 60 shares.

Allocating a Return Of Capital on a per share basis would seem to make sense in a non Spinoff scenario but I am not sure it does in a Spinoff scenario. Perhaps there should be an option to at least allow the user to determine how to account for this allocation in a spinoff scenario.

In the Spinoff transaction dialogue I would prefer Quicken allowed the user to enter the fraction of the old cost basis that should move to the new cost basis in place of the new and old stock prices (which appear to be used just to generate this fraction) and then reduce the old stock basis by the same amount of a lot by lot basis. Seems much simpler and more likely to match what the brokerage will report.

q_lurker

I then tried to determine what algorithm Quicken was using to update (reduce) the AT&T cost basis numbers. It appears to allocate the new AT&T cost basis not in proportion to the old cost basis of each lot but by the number of shares in each lot. Using this approach I was able to reproduce the Quicken AT&T numbers to within $0.01.

That is correct.

Allocating a Return Of Capital on a per share basis would seem to make sense in a non Spinoff scenario but I am not sure it does in a Spinoff scenario. Perhaps there should be an option to at least allow the user to determine how to account for this allocation in a spinoff scenario.

See my idea (and vote for it?) here:
https://community.quicken.com/discussion/7901982/fix-corporate-spinoff#latest

Also, I would discourage the fictional $10 / $computed process.  Quicken first drops that $10 into the price history for T on that date and IIRC, the MiscInc portion of the spinoff works off that value.  Later when you update to to the real closing prices for the spinoff, the numbers change.  I think I expanded on that and the related problems in my Idea post.  I think the better path is to start with the closing price for T, compute the needed price for WBD, and go with those values,  

Going forward after the faulty spinoff calcs, I see it as either a) ignore the discrepancies or b) Remove Shares (of T) and a set of Add Shares with the correct basis.

jwlent55

> @q_lurker said:

> See my idea (and vote for it?) here:
> https://community.quicken.com/discussion/7901982/fix-corporate-spinoff#latest

Glad to see there is already an open request for an improvement to how spinoffs are handled (including eliminating the mysterious MiscInc transaction).

I have voted for it. I hope others do too. Only 8 votes so far. Surely there are many more people who would appreciate this change. I found manually entering the correct values for 7 different tax lots tedious and I would prefer to never have to do that again.

John Prewitt

I used a spreadsheet to compute the spin off of Warner Brothers from AT&T. It appears that the Corporate Spinoff Wizard does not exist on the Mac version of Quicken so I had to use the Remove Shares for all AT&T shares and then Add Shares for each AT&T and WBD lot. The AT&T shares do not change for the spin off the number shares for each WBD lot is equal to the number of shares for each AT&T times the share ratio of 0.241917. The cost basis ratio is about 75% and depending on the brokerage house it may be greater or less. For Charles Schwab it's 76.146416%. When you compute the cost basis you should use the ROUND function to at lease 3 or 4 decimal places. I used 6. The cost basis for WBD is the difference between the original AT&T cost basis and the new cost basis. I used the SUM function to sum all the WBD lots. I then used the TRUNC function to determine the fractional shares of all lots. Charles Schwab sold the fractional shares from just the first lot and left all the other lots alone. If the first lot was obtained over a year ago then the cash-in-lieu value is a long term capital gain. If less than a year ago it's a short term gain.

jimshu1

Why can't I leave this thread???

I know, numerous requests for that option...

mycardtwo

Details of a successful entry of AT&T to WBD spinoff
Please do this on a *copy* of your Quicken file. (alas, there is no undo button)

Open corporate shares spinoff in Quicken:
Date 4/11/22
Security - ATT
New Company - WBD
New shares issued per oldshare - 0.241917
Cost per share day of spinoff - $19.63 (T)
Cost per new share " " - $24.78 (WBD)
Let Q do its thing - it generates a bunch of txns plus ReturnCapX and MiscIncX _UnrlzdGain to accomodate the adjustments to T cost basis.

Get a list of WBD transactions in Quicken - the share total will include fractional shares to sell.
Now get a list of WBD from your broker - the share amounts and costs will be slightly lower than what's currently in Quicken.

Calculate the difference for each lot: WBD Quicken - WBD broker (to six places). This should total up to the fractonal amount sold.

Sell the fractional shares in Quicken. Enter the cash in lieu of amount at the total price.
Specify lots - for each existing txn use the above calulated amount to distribute the sale over.

Quicken matched my brokers costs and quantity figures. (I had 0.000001 extra share of WBD.)

oldshack

i cant get quicken to recognize the spinoff yet its says brokerage and quicken are in agreement which they are not since my brokerage account has the results of the spinoff

oldshack

how do i enter the spoinoff manually?

neil154

I used the corporate spinoff in Quicken to record the WBD spinoff.  Before the spinoff Quicken showed mt cost basis properly.  After the spinoff the combined cost basis between ATT & WBD changed by a couple thousand dollars.  This makes no sense, the cost basis should have not changed.  Anyone ideas?

Charlie R

I was told by TD Ameritrade that - T New Cost = 76.1475% of T orig Cost - WBD shrs rec in Spinoff =24.1917% per shr of T owned - the received WBD Shr Cost = 23.8525% of Orig T Cost per shr. when I use these numbers in I can match their numbers, but when I try to use the same numbers with my E*Trade account I can't get the numbers to match E*Trade.
I tried letting Quicken do the numbers and they are all over the place. used T price $19.63 WBD price $24.78 and Spinoff .241917 ,completely confused

neil154

When you finished the spin off was the cost basis for the 2 the same as the cost basis for just ATT?

q_lurker

@Charlie R
As odd as it may seem, there is no requirement that two brokers allocate the cost basis in the same percentages. What percentages did E*trade arrive at before considering any cash-in-lieu amount and the associated sale of fractional shares of WBD?

That CIL amount and fractional share aspect may also be causing confusion.  Also, when you initiated the spin-off in the TDA account, that would have generated associated transactions in the E*Trade account - another possible consfusion point. 

For the TDA account, are you comfortable with the spin-off results?  The primary error I know of is in the allocation of the basis if you owned multiple lots of T before the spin-off. Is that an issue for you in either account?  

If you holding is ‘simple’ (not too many lots), you can edit the RtrnCapX, MiscIncX, and Add Shares transactions in the E*Trade account to yield the correct numbers. (A lot of lots makes the editing more difficult but it would still be possible.)

mvwabc

I hold shares at Fidelity and TD Ameritrade.  I was able to duplicate the Fidelity calculation - I multiplied the spinoff ratio (0.241917) times the WBD closing price on 4/11 ($24.78) to get the spinoff value ($5.9947).  I then added the WBD spinoff value ($5.9947) to the T closing price ($19.63), and divided the sum ($25.6747) into the spinoff value ($5.9947) to arrive at the percentage of the original T cost basis that should be attributed to WBD (23.3942%).

I was unable to calculate the TD Ameritrade allocation of 23.8525% to WBD.  I have requested TD Ameritrade advise the spinoff ratio and prices used to calculate the percentage of the original T cost basis that should be attributed to WBD.  They confirmed the spinoff ratio and advised the allocation of 23.8525% to WBD.  However, they have not provided the prices that are needed to use the spinoff feature in Quicken.

@q_lurker - Interesting that brokers can use different percentages.  However, I would expect that they would be able to provide the prices used to calculate the percentage they used to calculate the new cost basis.  Also, Quicken does not take the possibility of brokers using different allocations into consideration in the spinoff feature.  When you use the Quicken spinoff feature it updates the cost basis for all accounts at once.



 

 

q_lurker

mvwabc said:

I hold shares at Fidelity and TD Ameritrade.  I was able to duplicate the Fidelity calculation - I multiplied the spinoff ratio (0.241917) times the WBD closing price on 4/11 ($24.78) to get the spinoff value ($5.9947).  I then added the WBD spinoff value ($5.9947) to the T closing price ($19.63), and divided the sum ($25.6747) into the spinoff value ($5.9947) to arrive at the percentage of the original T cost basis that should be attributed to WBD (23.3942%).

I was unable to calculate the TD Ameritrade allocation of 23.8525% to WBD.  I have requested TD Ameritrade advise the spinoff ratio and prices used to calculate the percentage of the original T cost basis that should be attributed to WBD.  They confirmed the spinoff ratio and advised the allocation of 23.8525% to WBD.  However, they have not provided the prices that are needed to use the spinoff feature in Quicken.

@q_lurker - Interesting that brokers can use different percentages.  However, I would expect that they would be able to provide the prices used to calculate the percentage they used to calculate the new cost basis.  Also, Quicken does not take the possibility of brokers using different allocations into consideration in the spinoff feature.  When you use the Quicken spinoff feature it updates the cost basis for all accounts at once.

What can I say?  The IRS identifies that the responsibility to determine the "fair market values" of the two securities after the spinoff is completed lies upon the investor.  Presumably, you could dictate to the brokerage how those numbers should be calculated.  But I see that as a "Good luck with THAT." When you own the same company through two different brokerages, you get the situation you are in.  You are right, Quicken either did not anticipate that circumstance, or they considered it too rare to bother with.

As far as the brokerages providing the prices they used, that may be a back-end operation that your broker has limited access to, or it might be something they get from a third party requiring yet a deeper dig into someone else's back office. If you know the desired percentages and one of the prices, as you can see it is not too hard to come up with the associated second price.  The spinoff ratio is defined by the parent company -- 0.241917 in this case.  Hard to imagine anyone using a different ratio.    

You certainly have the option of 

• Enter the spinoff in Account A using the 'A' prices letting it generate transactions in Accounts A and B.
• Delete the generated transactions in Account B
• Enter the spinoff in Account B using the 'B' prices letting it generate transactions in Accounts A and B.
• Delete the newly generated transactions in Account A.

Or as I also suggested, just edit the transaction values in Account B from the first cycle through to match your brokerage data.  

FWIW:  I have not been real happy with this current manifestation of Corporate Spinoff.  My Idea to fix it from November 21 is here:  https://community.quicken.com/discussion/7901982/fix-corporate-spinoff  That suggestion did not address the possible brokerage differences.  
  

mshiggins

Ameritrade uses Gainskeeper for their cost basis tracking. Based on the share distribution I'm seeing there, it looks like the following prices were used:

T $21.77275
WBD $28.19187

neil154

Before I applies the spinoff my AT&T stock showed a small positive return (made small amount of money after all dividends and stock prices are accounted for).  After the spinoff the AT&T return showed a much larger positive return and the WBD had a even larger negative return so the sum of the returns for both stocks is now showing a large negative return.  It would seem to me that the return immediately after the spinoff (after adding the 2 together) should be identical to the return before the spinoff.  

mvwabc

@q_lurker – Thanks for your reply and link to your previous post. 

As you point out in your linked post – “The RtrnCapX computes the total reduction in basis for the parent company correctly, but RtrnCap transactions currently distribute that basis adjustment to multiple lots in proportion to the number of shares.  For this situation, the basis needs to be distributed in proportion to each lot's contribution to the total basis.”  Therefore, in the option you outline, the cost basis for the parent (AT&T) will also need to be adjusted for Account A and B.

For me, I am thinking it would be best to remove the AT&T shares from both accounts, and then add the AT&T share back into the accounts at the new cost basis established by each broker.  Then, add the WBD shares to both accounts using the cost basis established by each broker.

Since the responsibility to determine the "fair market values" of the two securities after the spinoff lies with me, I plan to follow-up with TD Ameritrade to understand the share values that were used to determine the allocation percentage.