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Posted by TomYoung on January 5, 2007, 5:36 pm
Please log in for more thread options Jerry Boyle wrote:
> > Jerry,
> >
> > I used my test database and actually entered the following
> > transactions:
> >
> > 01/01/2006 ADDED 1 share A @ $5/sh, acquired date 01/01/2006
> > 01/01/2007 ADDED 1 share B @ $50/sh, acquired date 01/01/2007
> >
> > I then did an ROC transaction on for $11 on 01/05/2007 and looked at my
> > lots of A. The first lot reflected a basis of $4 and the second lot a
> > basis of $40, correctly.
> >
>
> What version of Quicken? This isn't the way I recall things worked in Q2002
> and prior versions (although online updates to those versions may have
> changed things for people still running them!).
>
This is in Q2004. I used to use Q2002 and I don't think things have
changed since then, but can't be sure.
> Also, I thought that an $11 ROC for 2 shares should be treated as $5.50 per
> share. This would give bases of -$0.50 and $44.50 for the two shares. Common
> sense (and not tax expertise) tells me that if you are returned $5.50 for
> each share of stock that you own you should reduce the cost basis of *each
> share* by $5.50.
>
> Am I incorrect about this? Have tax laws for ROCs changed recently? Is there
> more than one type of ROC, each having different rules for computing the
> adjusted cost bases of separate lots?
>
Well, another common sense way to look at it is that you're returned $1
for one share of A and $10 for the other share of A. This is implicit
in the way these calculations are talked about in the information
disseminated by the companies. They don't talk about "so much per
share," they talk about percentages. In this example the information
statement would read along the lines of "...80% of your basis would be
allocated to A common stock, and the remaining 20% would be allocated
to the shares of B common stock you received
in the distribution." There's nothing wrong with your common sense
notion, it's just not how these things are structured from a tax
standpoint, and the requirement of taxes drives the accounting. As far
as I know - I'm no expert - this is the way it's worked for some time
for taxes.
> I haven't used the ROC transaction since Q2002 or earlier. I now have
> Q2006H&B and don't recall having seen the "Market Value" box. Can someone
> explain how this affects the ROC calculations? Does a non-zero value in this
> box cause the ROC transaction to use the tax rules for spinoffs (see below)?
> If so, then I withdraw my warning about using the ROC transaction for
> spinoffs for Quicken versions that have this box.
>
Don't have Q2006 so I'm no help here, but, in line with your following
comment, I suspect it's designed to replace that confusing word "cost."
> > I then deleted the ROC transaction.
> >
> > Next, I entered this transaction:
> >
> > 01/05/2007 (Corporate Securities Spin-off)
> > Security Name: A
> > New Company: B
> > 1 share new for each old share
> > $22 Cost per old share ($44 total)
> > $5.50 Cost per new share ($11 total)
> >
>
> This always confuses me. Does anyone else think the word "Cost" should be
> replaced by something like "Market Value at time of spinoff"?
>
> I wish Quicken would let you enter percentages for the value of the old and
> new shares because I've (eventually) been given these percentages for most
> of the spinoffs I've dealt with.
They're trying to guide you through one way of doing the calculation
for share cost post-split which is based on market prices per share of
the stocks, so using the word "cost" right in the calculation *is*
confusing.
> > and looked at my lots of A. Again, the first lot reflected a basis of
> > $4 and the second lot a basis of $40.
> >
>
> This reflects my understanding of how spinoffs should work. You have spunoff
> 20% of the value of the original stock and retained 80% so the cost basis of
> each original lot should be multiplied by 80% to get the new basis.
>
Yes.
> A couple of years ago I performed this spinoff calculation in both Q2002 and
> Q2003 and got the wrong answer. Since I didn't have Q2005 (the then current
> release) R.C. White tried the same experiment for me in Q2005 and got the
> correct answer, which I verified when I upgraded to Q2005.
>
> However, the Q2005 spinoff transaction still didn't work correctly for my
> real-world case, probably because of complexities caused by additional
> spinoffs, acquisitions, stock splits and sales. I always get the correct
> *total* adjusted cost basis for the original stock, but I gave up hope on
> getting the correct bases for the individual lots. I've pretty much resigned
> myself to selling my entire position in the original security, when
> practical, and doing things by hand or by guesstimating when I sell only
> part of my holdings. For the spunoff company I use the same cost basis for
> each share (even though I know I'm not supposed to) and try to dump my
> entire position ASAP. If you've dealt with ESOPs for AT&T and DRIPs for its
> spinoffs since 1969 you might understand this sloppiness.
>
There certainly *was* a bug in Q2002 caused by intervening sales and
transfers of the parent companies stock, as I documented in my post
"Bug in Corporate Securities Spin-off in Quicken 2002" back in May,
2002. Quicken went back in time and altered gains on sale of parent
company stock, mis-calculated the current basis of the parent company
stock, and the changes in gain on sale *didn't* equal the
mis-calculation of basis, leaving me with a "black hole" mystery!
Since that time I've *always* done my own calculations and entered my
own RtrnCapX and Added transaction(s).
Tom Young
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