Accounting for ATT WBD Spin Off

Platinum Platypus

The fields that Quicken describes as the closing price of old and new shares are what the IRS refers to as their Fair Market Value. The IRS does not require the use of any particular method for determining FMV, only that it must be used consistently. In this context consistently means that the same method must be used for both Old and New shares for this one spinoff transaction, not for all transactions in a tax year or for all transactions involving the same original purchase.

Credible methods for determining the FMV include the NYSE closing price the 1st day, averaging the Hi and Lo the 1st day, averaging the opening and closing price the 1st day, etc. You can use the ratio strike price of a 30 or 90 day put for both stocks (only if both exist). There's nothing magical about the first day, using the 2nd, 3rd ,4th or 5th day is also reasonable. There's nothing magical about selecting a single day, you could average that average of the Hi and Lo over days 3 to 5. As long as there wasn't some extraordinary news that applied to only one of the two, there's no fixed time limit for picking the values used to determine the ratio of the two fair market values, but going beyond 30 days will be difficult to justify. There is nothing binding on the investor about the guidance provided by the company on Form 8937. You can ask your broker to record the basis using the allocation ratio you chose to make it simple at some later date, they may not be equipped to do that, but usually are.

The IRS isn't prescriptive because the statute isn't and they have no inherent policy interest in codifying a method because no matter how you allocate the cost basis between the two companies, eventually they will both be sold or pass through the estate tax and the total proceeds less the total original cost will be the gain that's taxed, and it doesn't change. You may take more interest because the longer it is until you pay the tax the longer you get a return on the money that will be paid. You may want to pay more earlier because you think tax rates will rise or you will be in a higher tax bracket in a later year.

Gary R

I received 43 shares of WBD.  Please tell me how to enter the transaction in Quicken and if I need to adjust anything in AT&T.  Please do not refer me to the closed discussion.  It's just too complicated and I just want a simple answer.

q_lurker

My simple answer:
a)  Determine the basis of each lot of WBD generated by the spinoff.  Possibly, that is relying on information from your broker.  If it is many lots (because you had many lots of AT&T from reinvested dividends or similar)  If it is one lot, it should be really straightforward.  That basis should be about 24% of your pre-spinoff AT&T basis.
b)  See to it that there are the correct Add Shares for each lot of WBD generated.  Each Add Shares should have the correct number of shares (to your desired precision level), the correct bases (about 24% of the related AT&T lot basis), and the correct acquisition date corresponding to when the related lot of AT&T was acquired.
c)  Take note of the closing price/share of WBD on the date of the spinoff you are using.  Compute that Market Value as all WBD shares times that price.  My data suggests that should be 24.78 on 4/11/22.  YMMV.
d)  Taking note of that total WBD basis and total market value, enter one RtnCapX transaction for your AT&T security that uses that basis (amount) and that market value.  The Transfer Account should be the same one into which you are entering this transaction. 

If you follow up with the Investment performance report, the Returns and Investments column for that date (4/11/22?) for those two securities (AT&T and WBD) should balance each other.   

It is also likely that you were due some fractional share of WBD and received a cash-in-lieu payment for that fractional share.  Since you wanted simplicity, I omitted that consideration. 

The Corporate Spinoff action can be helpful, but I suspect it would add more complications at this later stage. 

MontanaKarl

I realize this is a 5 month old thread... but in case anyone else, like me, is finally getting around to dealing with the WBD spin-off and finds this thread during a search... The linked-below cost basis spreadsheet on the ATT site may be useful for checking your work.  I'm noting that the percentage of basis given by ATT does not match those above.  I haven't checked yet to see if it matches what my brokerage used on their end.

https://investors.att.com/stockholder-services/cost-basis-guide/worksheet/atandt-inc-wbd

JMSOUNDER

I received a spinoff of GE stock and have some concerns about the accuracy of the Quicken spinoff calculation. It appears that the calculations are correct when dealing with a single lot. The distribution ratio, 1:3 for example, the final reduced cost basis of the parent stock and the spinoff cost basis are correct. The required input information for the quicken wizard can be found in the company's 8937 form describing how to allocate the post spinoff cost basis between the parent stock and the spinoff stock. The total cost basis prior to the spinoff must be the same as the total cost basis after the spinoff of the combined shares. The ratio of the costs that are input determine the final reduced cost basis of the parent stock and the cost basis of the spinoff stock. Once set, this ratio should be applied to all shares and lots.
This does not seem to be the case in Quicken. I calculate the total shares correctly but on a lot basis, the spinoff shares and cost basis are correct, however, the new reduced parent cost basis is wrong. Furthermore, the total cost basis after the spinoff is incorrect.
Example: ge pre spinoff, 1200sh @$12000 cost; ge post spinoff 1200sh @$9495.53 cost and gehc 400 sh @2504.47 cost. Opeining price at spinoff, ge $68.41 and gehc $54.13; thus ratio 54.13/68.41=.7913 and the spinoff 1-.7913=.2087. Thus the new costs are $12000 multiplied by these ratios.
That is exactly the cost data in my Fidelity Account but not what I get on a lot basis in Quicken! One of the contributors in the AT&T commentary suggested that share quantities are part of the of the algorithm, I don't know, I cannot trust these results, perhaps I am doing something wrong!

q_lurker

  @JMSOUNDER If I am understanding you correctly, you are correct. My observations with the “current” spin-off calculation:

• The share quantities and cost basis for the spin-off come out correctly (at least within tolerance for a 1:3 ratio that Quicken handles as 0.333333.). 
• The total basis reduction applied to the parent is correct
• The distribution of the basis reduction for a multiple lot parent among lots is not correct. 
• Out of the chute, the results feed into the Investment Performance Report and Average Annual Return calculations correctly, but if the closing prices of the securities are later changed from the prices used on the spin-off form, those calculations will then be incorrect. 

Furthermore, the total cost basis after the spinoff is incorrect.

I have not found that to be the case.  Since you have stated that the cost basis of the spinoff shares is correct, I understand you to be referring to the total cost basis after the spinoff of the parent company shares.  I find the total correct, but the by-lot values incorrect.  

[By current, I mean the process that generates a RtrnCapX transaction, a MiscIncX transaction, and a series of Add Shares transactions.] 

I'll solicit your vote for my Fix-it idea posted here: https://community.quicken.com/discussion/7901982/fix-corporate-spinoff#latest.  

EDIT PS:  The more comprehensive discussion of the GEHC spinoff is here:
https://community.quicken.com/discussion/7926850/can-someone-give-the-investing-world-step-by-step-instructions-for-recording-the-ge-spin-off-of-heal