How to handle stock merger - VMware & Broadcom (edit)
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Well it's not doing it as we've seen. It only covers what they call "cash to boot" and I called "stock plus boot", following what I described as the normal rules — the one I and the CPA/CFP have always seen for such deals (excepting those that treat it all as taxable). So that calculator may be good (although about all it supplied by choosing the company, was the cash and number of shares per VMW share (a fractional number); you then STILL had to enter the number of shares and fractions you received. In any case, no one got it that way, as they split the shares into two lots and treated them separately, with a whole number of shares for each. As I said, this is NOT being handled as a normal deal, for some reason.
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If you bought VMW below 142.50, how is the cash to boot method different than all taxable. I thought it was a tax free merger.
For example, all taxable say you bought it at $100/share VMW is $142.5-$100 = 42.5/share gain. Fully taxed.
But the boot method would be .48 x 142.5 which is the boot or $59.85/share. Since in the boot method you must pay the boot as the minimum gain, you would pay more than in the fully taxable situation?
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With which method? The one that doesn't apply (in the US, as it has been done), is you get roughly $142.50 * .48 times the number of shares, PLUS.. .252 * .52 shares of AVGO times your number of shares, valued at something like $972, as I recall, per share (actually the average of the low/high or open/close on the date it closed. You will get well more than $142.50 per share. Compare that to your basis, and if the gain is more than 142.05 * .48 (the cash you would have received), you limit the gain to that 142.50*.48. Less than that, you report your actual gain… and if a loss, you report zero.
In THIS case, and nowhere else that I've ever seen, you get .48 times your number of shares, converted to $142.50 cash — your gain OR loss is that minus the basis., plus you get .52 times your number of shares converted to .252 shares of AVGO, as a tax-free exchange, it inherits the basis of those shares for the total; divide by the number of shares to get the basis per share. THEN you sell any fractional amount of AVGO for… I think someone said $972; that is likely a gain (but if a loss, you report that instead). In my case, when last I checked, the broker still reports that my fractional share, worth about $900, was sold for zero — waiting for an answer on that (I think they screwed up, but give them a break, I doubt anyone has seen it done this way).
Clear? :)
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I think you are saying that the costbasis calculator site is not the correct treatment in this case (although he seems to think it is, since he published it). I ran my numbers on the calculator and there are only two options on that calculator. If you enter '1' it is standard cash to boot. if you enter '2' it is fully taxable. There is no other option for this alternative method we are discussing here OR even my broker method which is as I described also.
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Correct, and unless something is specifically written for this, you won't find one. I've never seen one like this. Not sure if IRS will reject their Form 8937, or what can be done since they've already distributed shares and money under this scheme. Is this their first blended takeover and whoever ran it didn't know what they were doing? I'd hope they had professional advice.
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Let's see what the form says. Even this costbasis calculator at the bottom says the form has not been published yet.
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Why this is not a "normal" cash to boot merger — and this is purely my opinion at this time.
Again from this source:
https://www.sec.gov/Archives/edgar/data/1124610/000114036122035833/ny20005454x1_defm14a.htm#TOC
First, Broadcom's offer was that 50% of the VMWare shares would be exchanged for cash and 50% would be exchanged for AVGO shares.
The questions and answers section; question: What will I receive for my shares if the transactions are completed? in part states:
If you own 100 shares of VMware common stock and elect to receive solely the stock consideration, and 80% of the outstanding VMware shares elect to receive Broadcom common stock, 15% of the outstanding VMware shares elect to receive cash and 5% of the outstanding VMware shares do not make an election, you will receive cash in exchange for 37.5 of your shares of VMware common stock and Broadcom common stock in exchange for 62.5 of your shares of VMware common stock.
In that example, they are saying that 15% opted for and are getting all cash, 5% did not say and are getting all cash, and the remaining 80% are getting the remaining 30% cash and all 50% of the AVGO shares being distributed. But their manner of making that statement is that 3/8 of your shares are being exchanged for cash and 5/8 of your shares are being exchanged for AVGO shares. Because the AVGO share option was oversubscribed, those who elected for AVGO shares are instead being treated as if they had elected to exchange some VMW shares for $142.50 cash and some VMW shares for 0.252 AVGO shares. This is not the same as saying 1 VMW share is being exchanged for a fraction of an AVGO share and $xxx cash to boot.
I believe that is why my FI treated the event that way, as two separate 'transactions' with consideration as to which of my lots were sold for (converted to) cash resulting in current realized gains and which were exchanged for AVGO shares resulting in no current tax impact. I believe @questionsforever brokerage did that as well, although it seems harder to establish. I believe the costbasis.com presentation as a cash-to-boot event is not correct (again at this time).
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That is correct. And maybe even they used that wording in the prospectus, or whatever that was. However, I have seen a lot of blended deals, and everyone got the same amount of cash and the same amount of stock per share, exactly. AND it was one transaction, with the stock+boot rules I defined, and that calculator used. It also is (in that case), supposed to be prorated for each of your lots, and some may have a loss so no reportable gain/loss, with a lowered basis equal to the cash (boot). Others may have a gain, and they are subect to tax on the lesser of that gain or the amount of cash, with the taxable amount added to that lot's basis.
It was clear in my brokerage account that this was very different. They showed me getting an exact number of shares to convert to AVGO, and the balance converted to $142.50 cash. In my case they still screwed up two things — they have not yet figured a basis for the cash shares (if they had the basis for the others, it's the difference between that and the original basis!), and I only had one lot. AND they show the fractional share selling for ZERO, when it should be around $900. I have to work that out with them. AND if AVGO sold the shares and distributed the cash, then it was worth a lot more than it is now and I'd better be getting that.
I've done spreadsheets for each lot, coming up with the reportable gain (or zero if a loss), new basis, adding the reportable gain or subtracting the cash received. (And in thinking now, if the reportable gain is not zero but less than the cash received, I'd have to give some thought/research to see if the gain is added to the basis and some/all of the cash subtracted. But with what AVGO stock did recently (barring the time since the takeover), I suspect everyone WOULD HAVE had a gain equal to the cash. Not only will we have to see what AVGO says, we need to see if IRS challenges it; as I said, I personally (and the CPA/CFP I do some work with) have never seen it done this way. Is it an allowable way to do it? Dunno.
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Do brokerage firms have the right to change their treatment of a merger up and until the time official tax forms and reports are filed, usually in Q1 of the following year?
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Well they'd better. Mind says that they won't have the details for a few weeks; say to check back after Dec 22. And they sold my 0.9+ share for zero! They also don't have a basis for the cash received, yet do have a basis for that fractional share, after first breaking it into two lots — the one exchanged for cash and the one exchanged for stock.
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I’d say absolutely - and even beyond. To some extent, if further information became available, I believe they could make adjustments and issue an amended 1099 (US tax form) even after the first such “official” form was issued. Doubtful IMO for any changes very much later than end of Q1, but I suspect they “have the right” for a very extended time frame.
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Are we sure Broadcom sold all the fractional shares and distributed the cash? I just got cash which when divided by what my broker said I had sold for zero (still didn't change that), I got $904.70, not what was mentioned above, something like $972 as I recall.
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Are we sure Broadcom sold all the fractional shares and distributed the cash?
I got mine. $877.04 for 0.9 shares computes to $974.4889/share. (An even $974.50/sh in another account.)
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My broker shows 0.448 sold at $981.20. BUT, it was re-adjusted. The first day of the merger they had it at 565.4. I suspect it is from using their proprietary reset of vmw fmv just prior to merger, but then they changed their mind and sold it at avgo actual market price on date of closing. Btw it was only around 980 for a very brief moment as it started to march downward almost immediately after.
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OK, so the claim someone made that AVGO combined all the fractions and sold them, giving the blended average price to all was incorrect. Makes sense. It also means that by taking so long to figure that they had to sell it rather than showing it disposed of for zero, my broker cost me the better price. Guess it could have gone the other way; some of us expected the price to shoot up once the deal really happened.
And given how unusual this transaction was, I can't blame them for playing it safe and waiting for more info, confirmation, whatever. Not happy, had been thinking I lucked out and missed the drop that happened until yesterday.
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What was the actual cash in lieu amount you received in USD?
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981.20
The broker actually reversed the original assessment on the activity statement.
AVGO 2023-11-23
20:25:00 -0.448 565.3968
AVGO 2023-11-23
20:25:00 0.448 565.3968
AVGO 2023-11-23
20:25:00 -0.448 981.2000
The cost basis they chose was $565 (as per their weird method of selling it all at $142.48 VMW and going forward from there).
This an internal method and while i don't think it can change retroactively on the monthly or yearly statements, the tax forms they publish in Q1 2024 may or may not show a different treatment.
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That wasn't exactly what I asked but as something (apparently) copied from the FI's feed, it will suffice.
0.448 shares x $981.20/share = $439.58 CIL amount
My case was $877.04 / 0.9 shares = $974.4889/share, leading to what I thought you would get
0.448 shares x $974.4889/share = $436.57 CIL amount
I was hoping a fat finger somewhere hit 9 instead of 6 (or vice versa), such that both of us were really seeing the same $/share amount.
Maybe I paid a "$3 handling fee" I didn't realize.
Beyond my comprehension that Broadcom did not distribute to every FI a cumulative cash-in-lieu amount all based on the same rate — that some got one rate and others got a different rate.
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Given what happened to me, it looks like each broker got the fractions and sold them.
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Broadcom published the 8937 form for the VMWare acquisition (https://investors.broadcom.com/financial-information/tax-information)
From what I gather, it looks like a cash to boot transaction after all?
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so it is cash to boot? Does it mean the brokers will adjust the final tax forms treatment in a month or two since for example my broker used a method prior to this form on internal statements that differs materially from this treatment. I doubt they will change it on the account statements, but they may treat it differently on the tax forms. Guess will have to wait until they come out to see if there is an unpleasant surprise. A taxpayer is obligated to use the numbers on the official tax forms when they file their return right? I mean, that is what the IRS will base any decision on as to if you declared the transaction correctly?
"Treasury Regulations generally provide that a shareholder who surrenders stock and receives
both stock and cash in a reorganization is treated as having surrendered each share for a pro rata
portion of the stock and cash received, based on the fair market value of such surrendered share,
unless the terms of the exchange provide otherwise and are economically reasonable.
Generally, under sections 356(a) and 356(c), a holder of VMware Common Stock who received
a combination of Broadcom Common Stock and cash (other than cash in lieu of a fractional
share of Broadcom Common Stock) pursuant to the Broadcom/VMware Combination generally
will recognize gain (but not loss) for U.S. federal income tax purposes in an amount equal to the
lesser of (1) the sum of the amount of the cash (other than cash in lieu of a fractional share of
Broadcom Common Stock) and the fair market value of the Broadcom Common Stock received
in exchange for the share of VMware Common Stock surrendered, minus the holder’s adjusted
tax basis in the share of VMware Common Stock surrendered in exchange therefor, and (2) the
amount of cash received for such share of VMware Common Stock. See Line 16 for additional
information."When it says 'generally' twice here, is that what will be used here? Or is this transaction different than the 'generally' case?
Honestly this doesn't look very tax free transaction to me if the stock to boot method is used. Seems a bit of a con game in this case. I mean under the stock to boot method, the ENTIRE amount taxable gain for me would be say 33k and the boot only gain would be 29k. How is it tax free roll over to me when 91% of the transaction is totally taxable!?
On the other hand, the arguments that you elected all stock and were pro-rated also make sense.
However, the pro-ration clause was in the merger agreement, although it was not known the exact pro-ration amount, an investor would reasonably expect that his exchange would never be 100%, even if he had elected 100% stock.
In roll-over transactions is it the election that matters or the pro-ration?
End of the day I am going to probably use whatever the broker reports on official tax forms and worksheets come next February. You can't go wrong with that because that is documentation to back it up and also what is reported to the government. I don't know yet what the broker will report and not sure if their tax departments look at these 8937 forms to form an opinion about how to fill out the forms for their clients early next year.
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Holey whatever. I do not understand that!
BUT it has some points, not necessarily helpful.
- That second merger seems to have given you the cash option for a whole number of shares (so everyone's proration will be different). You get cash for exactly those whole shares. I think we all saw that.
- The rest are converted to AVGO shares including a fraction if applicable (almost everyone ends up with a fraction).
- The cash-in-lieu is distributed to all at the 11/21 closing value of $981.20. So the broker doesn't sell the fractions. So that is certainly more than the $904.79/share they gave me (which was in the trading range of the day the money showed up). Someone owes me $69.99.
- THEN they go back to the traditional allocation I described previously in the thread, for the stock plus boot. Except that in the traditional model, the numbers are the same for everyone, not the small differences from the fact that the shares converted to cash are rounded.
- This is further complicated by the dividend wording: "In certain circumstances, if a holder of VMware Common Stock actually or constructively owns Broadcom Common stock other than Broadcom Common stock received pursuant to the Broadcom/VMware Combination, the recognized gain could be treated for U.S. federal income tax purposes as having the effect of the distribution of a dividend under the tests set forth in section 302, in which case such gain would be treated as dividend income."
- WHAT circumstances?
- Is it OUR option, so we can ignore that? Not sure it makes much difference, as it is taxable at LT CG rates either way.
- (I had shares of AVGO before, in the same account, and a lot more than the ones I got from this merger.)
What are the odds that the brokerage firms will be able to go through all this? And by April 15? Mine took a while to show anything and still shows zero as the basis for the shares converted to cash, but they do show a basis for both the AVGO shares in my account, and amazingly, the same for the fractional share. Seems to me that the basis for the shares converted to cash would be the same (although they actually show the number of shares in that cash transaction, as the original VMW shares, not ~48% of it). I think they will issue an amended 1099 possibly after April 15, and everyone may have to either extend or amend their returns once it is figured out.
I'm remembering the original AT&T divestiture, where IRS ruled some time after tax season, that even though no cash was received (except for those in non dividend reinvesting accounts, cash-in-lieu payments), was a dividend, and a lot of people had to amend their returns.
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My advisers are sticking to the approach of X shares 'sold' for $142.50/share and Y shares exchanged at the 0.252 rate. They are unmoved by the Form 8937 language. I am dealing with a relatively small outlet, but am told Schwab is handling this deal that same way.
With the holiday weekend, it may still be too early to see reactions from other brokerages to the 8937 information.
Would love to know if any of you are working through a major broker.
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How exactly does this work? Is the actual treatment the broker will use published on tax form 1099-B that they issue every year? If so, can the taxpayer use a different method than appears on this form?
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Any tax form issued by anybody can be wrong, and your obligation as a taxpayer is to state all you income on your income tax return correctly. So you can certainly report amounts that are different than those printed on any 1099.
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It looks like the IRS doesn't have to approve the 8937, but I suspect they can declare it invalid. I've never heard of this way of handling it, which among other things means everyone has different splits due to the rounding of the shares converted to cash. (For convenience, it made more sense to have rounded the shares converted to stock as it would've been less fractional shares — who cares about fractional shares of $142.50?) But then again I got .9+ shares of AVGO (although if they had rounded up, I'd've had one more).
With that rounding, it also means that every lot has to be separately calculated or rounded, with different percentage breakdowns.
I've said over and over that this is very unusual — I and the CPA/CFP I work with have never seen anything like this.
I also will repeat what I said about the original AT&T breakup where sometime after tas season (don't even recall if it was the same year), IRS said that there was some part of the proceeds that must be reported as a dividend, and a lot of people had to amend their returns (it's possible IRS sent notices with bills that you could accept without filing an amended return). Looks like that happened in 1982.
And by broker still has it messed up big time, which makes no sense.
- They "sold" my fractional share days later at a lower price (see above for details but that's not important).
- They listed a price per share for that fractional AVGO share, which matched the PPS they assigned to the remaining whole shares I got. I haven't run the numbers yet but that had to mean they had a basis for them.
- YET, they list ZERO for the VMW shs converted to $142.50 each. This was even simpler — the basis was not even converted to AVGO; it was the original basis of VMW.
In any case, I stand by my comments about this method making no sense. Yet there's not much you can do about it but take what your broker says (I at least have to push them to list a basis for those VMW shares, not zero). If you use a different result, you will likely have to attach an explanation, and likely your return will get closer scrutiny. Guess you can effectively volunteer to be the test case that causes IRS to look at it real closely and maybe they'll make a ruling on it. Remember (or be aware), if they change it and you owe taxes, you will get hit with interest and possibly penalty — might be possible they will agree to waive the penalty if you ask; if you get a refund from it, they will pay interest (although at a lower rate — why do they have to be fair?)
BTW, since this IS a quicken forum, lemme put in a note about that. I believe if you show a capital change (split, reorg, merger/takeover), and you have multiple lots or even in different accounts, I think they use the same calculation for all; normally this means you don't have to enter it for each one. Not sure if it's even possible to have different treatments. Yet here, each lot, in each account, as that rounding (although for the same account, if your rounded amount doesn't come to a whole number of shares for each lot, YOU can use fractions. But it will be different for different accounts, for sure. So how it splits will be inconsistent. Haven't a clue how that is handled.
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My broker took a middle of the road method, but they often put something different on tax forms than on internal statements of activity. You then have to divide by the number of shares whatever they put on the tax forms to see what cost basis and realized gain that is implied. However, between the
(1) full pass through roll-over method of vmware cost basis to avgo shares received,
(2) the dispose all vmware shares at market price on date of merger, and roll over the avgo portion
(3) lowest of cash or total fmv gainm there is a huge difference.
The first two are quite tight, but the third is quite a large gain. In fact, your cost basis of AVGO will be around $920 vs $980 market price on closing. That seems almost like a full taxable gain and not really a roll-over of anything. In fact, taking the lower of cash and fmv seems like a roll-over of perhaps 10% with 90% taxable.
Btw, how does the IRS know what tax basis you used unless they strictly enforce the form 8937? They could review every declared gain on vmw stock x # of shares on every tax return and see if it comes out to close to the cash received vs whatever was declared?
For example in my case, I would declare something like 5k-8k under one of the first two roll-over scenarios but declare closer to 20k under the cash received method.
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@BradS wrote
With that rounding, it also means that every lot has to be separately calculated or rounded, with different percentage breakdowns.
That statement confuses me with respect to what my people did. As I envisage the 'conversation' from Broadcom went something like this:
Broadcom: Your tendered 144 shares to us for the exchange for stock election. Due to our subscription limitations, we are changing your tender to partial cash (approximately 47.9% of the shares tendered) and partial AVGO shares. In your case that will be 69 shares tendered for the cash exchange (since we are keeping tendered shares as whole share only). Your other 75 shares are being still treated as tendered for the stock option.
Brokerage: Thank you very much. We will then notify our client accordingly and decide which lots are in the 75 group and which are in the 69 group.
As my folks handled it, the 75 stock exchange shares came from one lot. The 69 shares exchanged (sold) for cash came from two lots. In assigning the shares in a lot, no effort was made to track the 69/75 split ratio within any lot. It appears to me (if I understood you correctly), that your brokerage is making things harder than they need to.
BTW, since this IS a quicken forum, …
This deal is not a built-in procedure within Quicken so your generalization does not apply. If you are handling this as a cash-to-boot deal, you need to make manual entries. If you are treating this as a some for cash, some for shares deal, you need to make manual entries in Quicken.
For the Some for cash, some for shares, I believe the correct procedure begins with Shares Sold transaction for cash. You get to specify the lots sold. That can be different in each account. I believe you can choose all of one lot one way and other lots splits both ways in an advantageous to you manner. After the Shares Sold, in Quicken it is a simple Corporate Acquisition. That probably does automatically get applied to all accounts, so do the Shares Sold in all account first. Don't make it harder than it needs to be.
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Since posts seem to be reviewed before releasing, this MAY come out before the one I just made, but in any case, regarding that "manual entry for quicken", guessing the only way to do that is to report the stock sold for that consideration, and AVGO shares bought for cash. Except that you can't show the original purchase date, and it will then report the sale of the fraction as short term. And you can't show the sales sold for $142.50 since there's a fair chance that will resolve as a zero basis will all of it taxable.
I REALLY hate these blended mergers, and generally try to sell before it closes. BUT I predicted (correctly) once I heard that shares that didn't make the election are forced to the cash option, that the stock would move to that value once the deadline passed. And I certainly didn't want that, knowing that the stock option was much more valuable. Might have sold before the election deadline but it was at too much of a discount. Knowing now how messed up this is, it might have been worth eating that discount. But then you would have missed all my dissertations here. :)
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I wanted to illustrate what I meant about each lot is different, and looked back at that 8937. They didn't even mention the allocation in there and I am not hunting it down for this.
Using: 48% of shs (rounded, let's assume <.5 goes down, .5 or more goes up), to cash, 52% to AVGO (can be fractions).
Cash shs get 142.50, AVGO shs get .252 shs of AVGO per VMW share.
Value of AVGO to value the consideration given, per 8937, can be $979.50. Cash for fractions is based on the close the day before the merger, or $981.20.
IF 10 shs of VMW:
4.8 shs for cash=⇒5, leaving 5 shs * .252 or 1.26 shs. 5 shs at $142.50 is $712.50, 1.26 shs of AVGO at $979.50 is $1,234.17; total consideration is $1946.67.
Note that the split is 50/50 due to the rounding.
Using their previously stated method, you sold half your shares for $712.50, gain/loss based on half your basis of that lot, and you have 1.26 shs AVGO at half your original basis; then you sell .26 shs for $981.20, or $255.11, gain/loss based on your basis for those .26 shares.
Using the standard stock plus boot, you sold the whole thing for $1946.67. If that's less than your basis (doubt it), I said earlier that there is no gain or loss, and remaining basis of the 1.26 shs— is lowered by the cash you received, or $712.50.) If you had a gain selling at $1,946.67, it's reportable, up to the cash you got, or $712.50. Basis of the AVGO 1.26 shs is the original basis of all, plus the reported gain.
Same thing but 100 shs VMW. This makes the rounding different and it's not 50/50. In fact, no rounding.
48 shs for cash, leaving 52 shs * .252 or 13.104 shs. 48 shs at $142.50 is $6,840, 13.104 shs of AVGO at $979.50 is $12,835.368; total consideration is $19,675.368 (call it $19,675.37).
Note that the split is 48/52 due to no rounding.
Using their previously stated method, you sold half your shares for $6,840, gain/loss based on half your basis of that lot, and you have 13.104 shs AVGO at 52% of your original basis; then you sell .104 shs for $981.20, or $102.04, gain/loss based on your basis for those .104 shares.
Using the standard stock plus boot, you sold the whole thing for $19,675.37. If that's less than your basis (doubt it), I said earlier that there is no gain or loss, and remaining basis of the 13.104 shs— is lowered by the cash you received, or $6,840) If you had a gain selling at $19,675.37, it's reportable, up to the cash you got, or $6,840. Basis of the AVGO 13.104 shs is the original basis of all, plus the reported gain.
Either way, because the rounding affects the breakdown of cash and AVGO stock, each lot has different splits. In a traditional stock+boot every share, every lot, would get $142.50*.48 cash, and .252*.52 shs of AVGO. You would make a spreadsheet of each lot, plug in the basis of each lot, and the number of shares. Depending on how fancy you wanted to be (I would be fancy if I had a lot of lots, not for just a few), you could either see if it's a loss and plug in zero for the gain/loss, or if it's a gain, plug in min(cash, gain) if a gain. (Fancy means a conditional where you use zero or that min depending on whether the actual gain/loss is a loss; takes more thinking but pays for itself it you have 50 lots… copy the line 49 times and plug in dates, basis, number of shares). Been there, done that.
For the twisted method, I guess you identify the lots sold for cash, and work up a spreadsheet for that, and then separately you work up a sheet for the AVGO (NOT to report, but to figure the basis of each). Of course, as I commented earlier, while they stuck with the twisted method of splitting things, their 8937 talks about the treatment of reporting a gain of the lesser of the gain or the cash received. BUT you can't have it both ways, so I have no idea.
For me, I think my broker went with the traditional method in that they reported a gain equal to the boot — they showed it sold for that with a basis of zero. Except they seem to have shown the PPS of the stock unadjusted, and I believe they should raise the basis by the reported gain.
That plus they claim to have sold my fractional share for 828.79 on (well they don't yet give a date but it did fall to that range several days after the deal). Except that the 8937 says that fractions were paid at $981.20, the value of AVGO at the close the day before the merger.
I think everyone will report what the broker reported, but then maybe having to amend with the corrected 1099s that will be coming. I certainly don't see this being resolved by the brokers before the due date of the 1099.
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