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Posted by R. C. White on October 13, 2008, 12:35 pm
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Hi, Doug.
> agree that Quicken's terminology is at times misleading.
Not just misleading, but flat out WRONG! "Cost" does NOT equal "Fair Market
Value"! And the wording has remained essentially unchanged for many years.
:>( The Help file adds a few words, but no clarity.
Also, in their "Help" file for spin-offs, there is this "explanation" under
"New Company":
"Enter the name of the new corporation or entity that will receive the
spin-off shares."
That's a STUPID sentence! The SHAREHOLDER is the entity that will RECEIVE
the shares, obviously.
It should read something like:
"Enter the name of the new corporation or entity whose shares you will
receive in the spin-off."
This error is new in Q2009, I believe, but I'm not going to reinstall Q2008
(or 2007 or 2006...) just to check it out.
My main gripe is the continued use of "Cost" where the wizard should be
asking for "Fair Market Value". We must enter FMV immediately after the
spin-off, when the market has determined how much of the original value was
due to the assets spun off into the new corporation. After we enter these
values, Quicken has the information it needs to allocate our original cost
between the old and new shares. We should not be asked to ENTER the new
cost; Quicken calculates it for us.
One more gripe is that, if you look at your Portfolio for any date between
your acquisition of Cypress and the spin-off, it will show that you owned
both Cypress and SunPower on that date - which is both right and wrong: you
owned SunPower, but only as a component of Cypress. This is not altogether
Quicken's fault; it's caused by the tax code provision that makes your
SunPower holding period start with the Cypress acquisition date. But
remember to mentally adjust for it whenever you are looking at reports for
dates within that time period.
End of rant. John P., can you get your contacts at Intuit to focus on this
wizard?
RC
--
R. C. White, CPA
San Marcos, TX
(Retired. No longer licensed to practice public accounting.)
rc@grandecom.net
Microsoft Windows MVP
(Currently running Quicken 2009 Deluxe in Vista Ultimate x64 SP1)
> RC
> Thanks for the comprehensive reply. I am sure it will be appreciated by
> many readers. I had all the info required to "fill in the blanks" for the
> entry. My main concern was whether I was using the correct/best method in
> Quicken. Based on your explanation, it appears that my gut instinct was
> correct. I agree that Quicken's terminology is at times misleading.
>
> Doug
>
>
>> Hi, Doug.
>>
>> Step 1: Find out what happened in The Real World.
>>
>> Step 2: Record this in Quicken.
>>
>> Trying to do Step 2 before Step 1 will get us in trouble every time.
>>
>> Usually, the best way to find out what happened in these situations is to
>> go to the Investor Relations page on the company's website. At
>> www.cypress.com, under About Cypress | Investor Relations there is a
>> heading "Spin-Off of SunPower Stock" with a link to "Tax Basis
>> Information". That takes us to
>> http://media.corporate-ir.net/media_files/irol/11/118770/SPWRTaxBasisInfo.pdf
>> with a 4-page explanation of what happened, including a worksheet for Tax
>> Basis Allocation to allocate your original Cypress basis between your
>> Cypress shares and your new SunPower shares. There is also this
>> paragraph:
>>
>> "Cypress received a private letter ruling from the Internal Revenue
>> Service that the Distribution of
>> SunPower Class B common stock qualifies as a tax-free distribution for
>> U.S. Federal income tax
>> purposes. As a result, you generally will not recognize gain or loss for
>> U.S. Federal income tax purposes
>> on the receipt of SunPower Class B common stock except with respect to
>> the excess of cash received in
>> lieu of any fractional share of SunPower Class B stock over the basis
>> allocable to such fractional share,
>> which shall be treated as capital gain from the sale of such fractional
>> share."
>>
>> OK. That's Step 1. Now to Step 2.
>>
>> It's easy to figure out this transaction using pencil and paper. But
>> Quicken's Corporate Securities Spin-off wizard has been misleading for
>> several years - and the 2009 Deluxe version that I'm using now is no
>> better - perhaps worse. Pressing F1 brings up the Help file for that
>> wizard, but the language here is cloudy - and wrong. :>(
>>
>> I haven't had occasion to use this spin-off wizard in several years,
>> Doug, except to try to answer other users' questions. But here is how I
>> THINK you should record the transaction. For convenience, I'll use their
>> example of 100 Cypress shares that cost you $20 per share.
>>
>> In the Quicken Enter Transaction screen, choose Corporate Securities
>> Spin-off and enter:
>> Transaction Date: 9/29/08
>> Security Name: Cypress Semiconductor (or whatever name you are using
>> in Quicken)
>> New Company: SunPower Class B (or whatever name you want to call it in
>> your files)
>> New shares issued ___ per old share: 0.27427234997709 (feel free to
>> round this - to .274272, for example)
>> Cost per old share ___ (post spin-off): THIS is where Quicken's
>> terminology is just flat WRONG and it has not been wrong for years!
>> :>( "Cost post spin-off" is what we are trying to determine. What you
>> need to enter here is FMV (Fair Market Value) of the Cypress shares
>> immediately after the SunPower shares have been spun off. As Cypress'
>> worksheet explains, this was determined to be $5.22 per share, and this
>> is what you should enter where Quicken incorrectly asks for the "cost".
>> Cost per new share: This also should be FMV of your new SunPower
>> shares: $69.05, per the Cypress worksheet.
>>
>> Note that you don't actually enter the cost of either Cypress or SunPower
>> here. Quicken already knows your old basis in Cypress and will calculate
>> your new bases in both issues.
>>
>> Then click Enter/Done and let Quicken calculate your new basis in the old
>> and new shares and update your portfolio to record your new SunPower
>> shares. Note that the acquisition date of SunPower will be the same as
>> for your Cypress shares. This is the correct treatment for a "tax-free
>> transaction", since the Internal Revenue Code "tacks on" the holding
>> period of our original shares to determine the holding period of the new
>> shares you received.
>>
>> As a test, make sure the sum of your basis in Cypress and SunPower on
>> 9/30 is the same as your basis in Cypress on 9/29. All you have done is
>> take that total basis and allocate it between the old and new holdings.
>>
>> Sorry to make this explanation so long, and probably in more detail than
>> you need. But others will be "reading over our shoulders" and maybe the
>> fuller explanation will head off some of their questions.
>>
>> I've been retired for nearly 20 years, Doug, and these rules can change
>> daily, so be sure to consult your own CPA to be sure that these rules
>> still apply.
>>
>> RC
>> --
>> R. C. White, CPA
>> San Marcos, TX
>> (Retired. No longer licensed to practice public accounting.)
>> rc@grandecom.net
>> Microsoft Windows MVP
>> (Currently running Quicken 2009 Deluxe in Vista Ultimate x64 SP1)
>>
>>> I've been trying to determine the best method to record a stock spinoff.
>>> After reading the "manual", I'm still not sure which is the best way.
>>>
>>> Cypress Semiconductor recently made a stock distribution of its
>>> ownership in Sunpower Corp to Cypress shareholders. Quicken's Help
>>> refers to the spin off of "new securities" - which I have considered to
>>> be the creation of a new security from within the existing company.
>>> Does it also mean ANY new security that is being added to your
>>> portfolio?
>>>
>>> In this case, Sunpower stock already exists - Cypress is merely
>>> distributing the company's stake in it directly to the shareholders. I
>>> have done it as a spin off, and it seems OK - BUT - is that the
>>> best/correct way?
>>>
>>> One more question. Sunpower does not appear in my list of securities in
>>> the "Investing Center". For that matter, neither does another company
>>> spin off done last year. Is there a way to include it? Thanks.
>>>
>>> doug
>>
>
>
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