MMP and OKE Merger
Anyone own MMP stock and figured out how to enter the merger with OKE in Quicken yet?
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Basically, very basically, you treat it as a sale of your MMP units using your MMP unit's basis - that's the hard part - and using the fair market value of the stock received plus the cash as the "proceeds." If I stop right there the accounting isn't particularly difficult.
Using the Fair Market Value of the OKE stock - I'd expect that management will opine on what they consider that to be, though there's no universal "cookbook" method of determining what that is - plus the cash received you sell your MMP units for that sum. That leaves "cash" in your Quicken Account in excess of the actual cash by the amount of the FMV of the OKE stock. Then you take that excess cash and buy OKE stock at that same FMV, giving you the basis of that stock, starting its holding period, and leaving the actual cash received in the Account.
That's the 10,000 foot overview of the deal, though having held units in a partnership means that your basis isn't what you originally paid for it so you might have to wait until the Schedule K-1s and/or other information is provided to you to make the correct entry.
Here's some of the discussion in the S-4 concerning MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES:
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The receipt of shares of ONEOK Common Stock and cash in exchange for Magellan Units pursuant to the merger will be a taxable transaction to U.S. holders for U.S. federal income tax purposes. In general, the merger will be treated as a taxable sale of a U.S. holder’s Magellan Units in exchange for shares of ONEOK Common Stock and the aggregate Cash Consideration received in the merger. The remainder of this discussion assumes that the merger will be treated as a taxable transaction.
Amount and Character of Gain or Loss Recognized
A U.S. holder that receives shares of ONEOK Common Stock and cash in exchange for Magellan Units pursuant to the merger will recognize gain or loss in an amount equal to the difference between (i) the sum of (A) the fair market value of the shares of ONEOK Common Stock received (plus any cash received in lieu of a fractional share of ONEOK Common Stock), (B) the aggregate Cash Consideration received in the merger and (C) such U.S. holder’s share of Magellan nonrecourse liabilities immediately prior to the merger and (ii) such U.S. holder’s adjusted tax basis in the Magellan Units exchanged therefor (which includes such U.S. holder’s share of Magellan’s nonrecourse liabilities immediately prior to the merger).
A U.S. holder’s initial tax basis in Magellan Units that were purchased with cash equaled, at the time of such purchase, the amount such holder paid for the Magellan Units plus the U.S. holder’s share of Magellan’s nonrecourse liabilities. Over time that basis has (i) increased by the U.S. holder’s share of Magellan’s income and by any increases in the U.S. holder’s share of Magellan’s nonrecourse liabilities, and (ii) decreased, but not below zero, by distributions from Magellan, by the U.S. holder’s share of Magellan’s losses, by any decrease in the U.S. holder’s share of Magellan’s nonrecourse liabilities and by the U.S. holder’s share of Magellan expenditures that are not deductible in computing taxable income and are not required to be capitalized. Upon the disposition of a Magellan Unit, including in connection with the merger, a U.S. holder’s basis in its Magellan Units will be increased by the U.S. holder’s share of certain items related to business interest not yet deductible by such U.S. holder due to applicable limitations on the deductibility of such business interest.
Except as noted below, gain or loss recognized by a U.S. holder on the exchange of Magellan Units in the merger will generally be taxable as a capital gain or loss. However, a portion of this gain or loss, which could be substantial, will be separately computed and taxed as ordinary income or loss under Section 751 of the Code to the extent attributable to “unrealized receivables,” including depreciation recapture, or to “inventory items” owned by Magellan and its subsidiaries. Ordinary income attributable to unrealized receivables and inventory items may exceed net taxable gain realized upon the exchange of a Magellan Unit pursuant to the Merger Agreement and may be recognized even if there is a net taxable loss realized on the exchange of such U.S. holder’s Magellan Units pursuant to the merger. Consequently, a U.S. holder may recognize both ordinary income and capital loss upon the exchange of Magellan Units in the merger.
Capital gain or loss recognized by a U.S. holder will generally be long-term capital gain or loss if the U.S. holder has held its Magellan Units for more than twelve months as of the Effective Time. If the U.S. holder is an individual, such long-term capital gain will generally be eligible for reduced rates of taxation. Capital losses recognized by a U.S. holder may offset capital gains and, in the case of individuals, no more than $3,000 of ordinary income. Capital losses recognized by U.S. holders that are corporations may only be used to offset capital gains.
The amount of gain or loss recognized by each U.S. holder in the merger will vary depending on the value of the shares of ONEOK Common Stock received by each U.S. holder in the merger and on each U.S. holder’s particular situation, including the adjusted tax basis of the Magellan Units exchanged by each U.S. holder in the merger and the amount of any suspended passive losses that may be available to a particular unitholder to offset all or a portion of the gain recognized by each U.S. holder. Passive losses that were not deductible by a U.S. holder in prior taxable periods because they exceeded a U.S. holder’s share of Magellan’s income may be deducted in full upon the U.S. holder’s taxable disposition of its entire investment in Magellan pursuant to the merger. Each U.S. holder is strongly urged to consult its own tax advisor with respect to the unitholder’s specific tax consequences of the merger, taking into account its own particular circumstances.
Magellan Items of Income, Gain, Loss, and Deduction for the Taxable Period of Magellan that Includes the Date of the Merger
A U.S. Magellan unitholder will be allocated its share of Magellan’s items of income, gain, loss, and deduction for the taxable period of Magellan that includes the date of the merger in accordance with the Magellan Partnership Agreement. A U.S. holder will be subject to U.S. federal income tax on any such allocated income and gain even if such U.S. holder does not receive a cash distribution from Magellan. Any such income and gain allocated to a U.S. holder will increase the U.S. holder’s tax basis in its Magellan Units and, therefore, will reduce the gain, or increase the loss, recognized by such U.S. holder resulting from the merger. Any losses or deductions allocated to a U.S. holder will decrease the U.S. holder’s tax basis in its Magellan Units and, therefore, will increase the gain, or reduce the loss, recognized by such U.S. holder resulting from the merger.
Tax Basis and Holding Period in Shares of ONEOK Common Stock Received in the Merger
A U.S. holder’s tax basis in the shares of ONEOK Common Stock received in the merger will equal the fair market value of such shares. A U.S. holder’s holding period in the shares of ONEOK Common Stock received in the merger will begin on the day after the date of the merger.
Tax Consequences to U.S. Holders of Owning and Disposing of Shares of ONEOK Common Stock Received in the Merger
Distributions on Shares of ONEOK Common Stock
For U.S. federal income tax purposes, distributions of cash by ONEOK to a U.S. holder with respect to shares of ONEOK Common Stock received in the merger will generally be included in such U.S. holder’s income as dividend income to the extent of ONEOK’s current or accumulated “earnings and profits” as determined under U.S. federal income tax principles. A portion of the cash distributed to ONEOK shareholders by ONEOK after the merger may exceed ONEOK’s current and accumulated earnings and profits. Distributions of cash in excess of ONEOK’s current and accumulated earnings and profits will be treated as a non-taxable return of capital reducing a U.S. holder’s adjusted tax basis in such U.S. holder’s shares of ONEOK Common Stock and, to the extent the distribution exceeds such U.S. holder’s adjusted tax basis, as capital gain from the sale or exchange of such shares of ONEOK Common Stock. Dividends received by a corporate U.S. holder may be eligible for a dividends received deduction, subject to applicable limitations. Dividends received by an individual U.S. holder may be taxed at the lower applicable long-term capital gains rate if such dividends are treated as “qualified dividend income” for U.S. federal income tax purposes.
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Tom, you lost me after "basically"!
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Sandy, I have it all sorted out. If you need help with this let me know.
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Basically…
Let's say you have 10 shares of company A that you tender, receiving 1.5 shares of company B plus $3.00 for each share. Let's further say that the fair market value of each share of company B at the close of the deal was $15.75.
$15.75 x 15 shares of company B received has a value of $236.25. The cash received would be $30.00 (10 x $3.00). Add those two numbers together and the total real "proceeds" of your sale is $266.25. At this point your Account only has $30 of actual cash in it.
Use those "proceeds" of $266.25 and sell your 10 shares of company A, recognizing gain or loss as appropriate. At his point cash in you Account is $30 + $266.25 = $296.25.
Now take the "proceeds" of your sale ($266.25) and use that "money" to buy 15 shares of company B. That starts your holding period and basis for that new stock.
At this point the cash in your Account is back to the $30, reflecting the cash actually received in the transaction.
Real life is frequently messier than this and to make accurate entries here you need to know your basis in company A. With partnerships your basis generally isn't what you paid for the units; it gets adjusted by partnership gains and losses, and other things.
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Sandy, I owned 100 shares of MMP on the merger date and here is how I recorded it in Quicken. This is how Schwab handled the transaction. You can substitute the number of shares you own for the 100 shares I used below.
1st Transaction: On 09/25/2023 MMP paid a special dividend of $0.2474/share. So, record a Dividend transaction for this in Quicken.
2nd Transaction: Record a Sell of 100 shares of MMP at $66.737/share (Total Sell $6673.70) on 9/25/2023.
3rd Transaction: Record a Buy of 66.7 shares of OKE (.667 x 100 shares MMP I owned) at $62.574213/share (Total Cost $4,173.70). For the date in this transaction use the original purchase date for the 100 shares of MMP you bought. In my case that was 02/26/2021.
4th Transaction: Sell .7 shares of OKE (Cash in Lieu of Stock) for $64.50/share (Total Sell $45.15) on 09/27/2023. You would use what ever partial shares you get from 2nd Transaction above.
Say you owned 175 shares instead of the 100 I used above. That would mean that in the 3rd Transaction you would record a buy of 116.725 shares (.667 x 175 shares) and in the 4th Transaction you would show a sell of .725 shares (Cash in Lieu of Stock).
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@crwalejr wrote:
3rd Transaction: Record a Buy of 66.7 shares of OKE (.667 x 100 shares MMP I owned) at $62.574213/share (Total Cost $4,173.70). For the date in this transaction use the original purchase date for the 100 shares of MMP you bought. In my case that was 02/26/2021.
@Tom Young had quoted from the relevant documents (emphasis added):
A U.S. holder’s tax basis in the shares of ONEOK Common Stock received in the merger will equal the fair market value of such shares. A U.S. holder’s holding period in the shares of ONEOK Common Stock received in the merger will begin on the day after the date of the merger.
Those are contradictory positions. I’d believe the quoted documents and date the Buy 9/26/2023.
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2nd Transaction showing sell of MMP includes the $2500.
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Once again Quicken is not tracking the transactions from Schwab. I had a similar issue with Liberty Media reorg last month so I am guessing Quicken has a core issue with Reorgs from Schwab. In the Magellan case, I had 790 shares of Magellan which were swapped for $19k of cash, and 527 shares of OKE. Quicken never removed the Magellan shares so I am out of balance by about $53k which was the value of the Magellan shares prior to the merger. Additionally, Quicken does not notify me that I am out of balance and thinks everything is great. How do I get Quicken in balance with schwab.. I don't see what transaction I can tweak to make things right. See attachment.
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"so I am guessing Quicken has a core issue with Reorgs from Schwab"
NO, that's not the problem. Quicken can't deal correctly with ANY stock plus cash acquisition/merger; there's no built-in wizard that can handle this.
For one thing, there's no "only one right way" to account for these transactions. To find the right way to account for the merger you should be looking at the section of the registration or proxy titled something like "Material U.S. Federal Income Tax Consequences" or similar, where the companies express their opinion on the correct accounting, and even those sections typically have alternative accounting treatments depending on rulings by the IRS, the level of your ownership, your citizenship, and so forth.
The onus is on you to figure out how you're going to account for the transaction and, commonly, these deals require considerable calculations that you need to make outside of Quicken and then determine how you're going to achieve this result in Quicken. Understand that in most cases the broker is only going to present you with entries that try and get your positions properly calculated but they are not going to develop the Quicken accounting entries that achieve those positions, taking into account the income tax effects.
ADDED: Are you using the MAC version of Quicken? If so you might want to note that as the Mac and Windows versions have different capabilities.
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Supplementing that answer, note that the 2nd transaction sale was for a total of 6,673.70 and the 3rd transaction buy used $4,173.70. The net of those two left $2,500 cash in the account - the $25/share x 100 shares.
ADDED: Are you (belknapdb) using the MAC version of Quicken? If so you might want to note that as the Mac and Windows versions have different capabilities.
Even though MAC and Win versions have different investment transactions available, this transaction appears to only involve a Sale and a Buy and another (fractional share) Sale. The Mac version should readily handle those types of transactions.
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Ignore/delete the downloads from Schwab and follow my steps outlined above for the shares you own and it will balance. If you run into any questions as you record the transactions respond to this feed and I’ll try and walk you through it step by step.
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Thanks! Sorry to be responding late on this. E-Trade makes it even harder because they never showed the fractional shares until my statement posted. Worked out OK. My monetary amounts are slightly different, pennies here and there. All good.
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