Corporate Spinoff Wizard does not give correct results on a Lot basis for large data files.

JMSOUNDER

Can anyone at quicken status the effort to resolve this issue? I have searched all over this community and have found nothing that suggests this problem is being worked.

Jim_Harman

This issue is not related to the size of your data file but rather the fact that you held multiple tax lots of the parent company prior to the spin-off, right?

JMSOUNDER

Thanks Jim for your prompt response, you have always provided good advice in past commentaries. Yes, that is correct, I have multiple lots in several accounts, taxable and tax sheltered. The spinoff wizard applied to a single account yields correct total cost basis allocations between the originating stock and the spinoff stocks. However, on a lot basis, that ratio changes for each lot and the combined cost basis of post spinoff stocks do not agree with the total cost basis of the stock pre-spinoff. This is completely wrong, the cost basis before and after the spinoff must be the same, you cannot increase the cost basis post spinoff, but this is happening in the program. I exported the post spinoff stocks and summed them over the entire account, and you can see that the individual lot cost basis post spinoff do not agree with the cost basis pre spinoff on a lot basis. Some totals are less and some totals are more, but the overall sums are correct.
Maybe the wizard is too complicated to address taxable and tax free spinoff? Also, it would be nice to control the calculation by account rather that the across all acounts in a single input, especially if the equities are in tax free IRS and the spinoff is a taxable event?

Tom Young

The only way, right now, to get accurate lot-level information due to a spin off is to do your calculations outside of Quicken, do a global remove of the parent company stock, then do individual adds of each lot of the parent and child stocks.  That's a lot of work to do by hand, though Quicken used this exact same process, automatically, in the old spin-off wizard. 

Quicken changed this process, which gave the correct accounting results, because the IRR report was not properly handling the spin off.  Instead of modifying the report Quicken decided that this current process of creating Return of Capital and a Miscellaneous Income entries - entries that you can't find in the real world - was the way to go.  As you've found out the calculation of how the Return of Capital should be allocated across the parent company stock is in error, leading to incorrect accounting information.  You get correct overall bases numbers for both the parent and child, but incorrect lot level bases for the parent.

"Maybe the wizard is too complicated to address taxable and tax free spinoff?"

The wizard in both old and new iterations only deals with tax-free spin offs, there's no Quicken wizard that can handle a taxable situation, typically called a split off.

q_lurker

On a positive note, I have gotten word that they are working on a fix to the current procedure.

@JMSOUNDER If you truly have a repeatable case where the total prior cost basis is not matching the total after-spinoff basis, I hope you can document that fully in my Fix-it idea.  I have not seen that happen and I take it @Tom Young has not either.  Getting the problem identified and documented prior to their next correction would be really helpful to all.

I suppose a discrepancy can seem to appear if a cash-in-lieu sale is not cleanly addressed.  That is, the before/after cost basis comparison needs to be made before the fractional shares are sold for the cash-in-lieu amount.

Two other possible problematic cases
1)  Average Cost used for the security -- this is a tricky case even in the real world, not likely to apply in a Corporate spinoff since Average Cost is only supposed to apply to mutual funds (US policy).  I would not expect the Corporate Spinoff action to process that circumstance.  As such, I would hope a 'stop sign' message would be in place if a user tried to do that. 
2)  Prior RtrnCap transactions -- I have not had that case appear before.  I can imagine it could be a hiccup for the process but it should be addressable easily enough.     

Tom Young

My post split analysis, worked out in an Excel file and using bases information imported directly from Quicken, (pre and post spin off), showed a lot-level discrepancy between the basis of each original GE lot and the sum of that lot's post-split basis and the basis of the GEHC lot it spun off, but overall the difference was only 5 cents. 

One of my objections to Quicken's use of the Return of Capital transaction was that historically the RtrnCap action seemed to not infrequently create errors in the security's basis.  I'm not sure if that's still the case but I'm still leery of them. 

The cash in lieu received should be entered as a sale of GEHC stock.  In my case that sale came entirely from the first lot of GE purchased, the typical default of FIFO.

JMSOUNDER

Thanks Tom and q for your comments. I have created several screen shots that illustrate our discussion. I hope I am able to post them, they show the wizard input, the pre spinoff ge and the post spinoff of ge and gehc. I used the 8937 data for input.

q_lurker

@JMSOUNDER
Here is my evaluation of your data. 

   

I see the total basis after spinoff $0.01 different that before spinoff.
I see the total GE Basis after spinoff off by $0.03.
I see the total GEHC Basis after spinoff off by $0.04
I see the GEHC share numbers tolerably accurate.  See footnote
I see the types of errors on the GE basis per lot that I would expect - low by $237 on a big lot; high and low by smaller amounts on small lots but again, the total correct.  

Thanks for sharing your details.

Footnote:  I do not choose to track share counts of any security to more that 3 or 4 decimal precision.  So for example, I would have had the large 2009 lot at 71.9000 shares to begin with.  While the 0.333333 share ratio would have produced 23.966666 shares, I then would have edited that to 23.9667 shares.  I find the more control I apply on the precision of shares, the fewer unintended rounding situations develop.      

JMSOUNDER

Nice summary, I hope this discussion which brings together several superusers with combined experience will help others who are struggling with this issue, further, that it will help Quicken to provide a timely resolution. In the meantime, I intend to leave my accounts alone but add gehc cost basis to the "add" transactions downloaded from Fidelity, and use Fidelity data if I need to sell shares.