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I'm getting an early start on my 2012 taxes.

Way back in the heady days of 1998 I bought 200 shares of CBS.

In 2000, that turned into 217 shares of Viacom. There was no cash paid out at the time -- no cash-in-lieu, no partial dividends, no nothing. Just the 217 shares.

In 2006, Viacom split off new CBS shares , leaving me with 108 shares of CBS-B and 108 shares of Viacom. A few days later I got two cash-in-lieu payments, one for each of the new companies.

I sold both issues this year for a gain. I figure I'll split my original CBS cost based on the relative value of the two daughter companies. That is, if Viacom was worth $20 per share after the split and CBS was worth $10 per share after the split, I'll apportion 2/3 of the basis to Viacom and 1/3 of the basis to CBS. How I do it won't affect the bottom line, but I want to get it right on general principle.

Then there's the matter of the cash-in-lieu payments. Since I already paid taxes on that, I assume I can increase my basis in each stock by the amount of the cash-in-lieu.

Do I have that right?

Thanks.

--fleg, who is glad he's saved all his brokerage statements since he started investing
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fleg9bo; "Then there's the matter of the cash-in-lieu payments. Since I already paid taxes on that, I assume I can increase my basis in each stock by the amount of the cash-in-lieu.

Do I have that right?"


Not a tax pro, but that sounds backwards to me. I suspect that some of your basis was allocated to the cash-in-lieu, especially if it was payment for what would have been a partial share.

Waiting to hear the pros chime in.

Regards, JAFO
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Cash in lieu of partial shares is a sale. The cost basis should have been pro-rated for the liquidated shares.

How I do it won't affect the bottom line, but I want to get it right on general principle.

The proper method is to reference the documentation your received in 2006. The documentation should specify how to divide the cost basis.

As you stated since you sold both in the same year, how the allocation is done doesn't change your tax liability.
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I'm getting an early start on my 2012 taxes.

I'm sorry. Planning ahead is not allowed. You may not ask this question until April 13, 2013. ;-)

Way back in the heady days of 1998 I bought 200 shares of CBS.

OK.

In 2000, that turned into 217 shares of Viacom. There was no cash paid out at the time -- no cash-in-lieu, no partial dividends, no nothing. Just the 217 shares.

Good. Your basis in the 217 shares of Viacom is same as your basis in the 200 shares of CBS - namely your purchase price plus any commission or fees paid at the time of purchase. At this point, please DO NOT think in dollars per share. It's just a total number of dollars.

In 2006, Viacom split off new CBS shares , leaving me with 108 shares of CBS-B and 108 shares of Viacom. A few days later I got two cash-in-lieu payments, one for each of the new companies.

I sold both issues this year for a gain. I figure I'll split my original CBS cost based on the relative value of the two daughter companies. That is, if Viacom was worth $20 per share after the split and CBS was worth $10 per share after the split, I'll apportion 2/3 of the basis to Viacom and 1/3 of the basis to CBS. How I do it won't affect the bottom line, but I want to get it right on general principle.


Let's stop here. This is where the work is. As you correctly point out, the work is mostly irrelevant since you sold both of the split-up companies in the same tax year. But we'll carry on for the fun of it, and for the two lurkers who should have asked this question but didn't, and sold their shares in different tax years.

If you poke around the Viacom or CBS investor relations web sites, you'll probably find out the proper allocation of your cost between the two companies. That is the technically correct way to deal with your basis. However the basis is split, your check figure is that the total of the basis in the two companies is the same as your original basis before the split up.

Your allocation based on relative values is not correct. Only the companies involved can tell you the correct allocation in the spin off. Assuming the spin off is tax free (and there's a slim chance that it wasn't, so read the web sites carefully), the company will have to have requested tax-free treatment from the IRS. I believe part of that request would include the allocation of basis to the spun-off company.

Then there's the matter of the cash-in-lieu payments.

Yeah - about those. You did that wrong back in 2006. You should have first done the basis allocation from above. That would give you your basis in the 108-plus-a-fraction shares in each company. The cash in lieu is a sale of the fractional share. So you'd then need to allocate your total cost in the newly spun off companies to that fraction of a share that was sold. Of course, that leave you with a very slightly smaller basis in the whole shares.

Since I already paid taxes on that, I assume I can increase my basis in each stock by the amount of the cash-in-lieu.

As noted above, no.

Do I have that right?

Only to a point.

Now for the practical application, I'd just ignore the mistake in the fractional share reporting and claim the whole basis this year. If you are audited, it is possible the auditor would reduce your basis. And because 2006 is beyond the statute of limitations, you would not be able to amend that year to claim the basis there. In short, you'd get a small whipsaw.

I'd still recommend taking the whole basis however. You did over pay your taxes back in 2006, and you're making that up this year. While you have a bit of overall equity on your side, you don't have the letter of the law.

--Peter
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Then there's the matter of the cash-in-lieu payments.

Yeah - about those. You did that wrong back in 2006. You should have first done the basis allocation from above. That would give you your basis in the 108-plus-a-fraction shares in each company. The cash in lieu is a sale of the fractional share. So you'd then need to allocate your total cost in the newly spun off companies to that fraction of a share that was sold. Of course, that leave you with a very slightly smaller basis in the whole shares.


Gotcha. What I actually did was put the cash-in-lieux (cashes-in-lieu?) on my 2006 Schedule D with a $0 basis. The two items totalled $34 out of six figures worth of cap gains, so I didn't care if I paid a few pennies more in tax if it saved me some work. And I don't care too much if I can't recapture those few pennies now by increasing my basis by $34. I'll see if I can find the basis allocation info on the companies' websites.

Thanks for the help, but I'm just getting warmed up. Next is Citigroup, which changed its name from Travelers before spitting out a handful of shares of TPCA and TPCB to which strange things happened, leaving me with shares of C alongside a few shares of a newfangled Travelers. That ought to be fun.

--fleg
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I went to Viacom's website and downloaded the sheet for figuring the basis in my shares. It was easy peasy. And I found out that I declared $24 more in cap gains for the cash-in-lieux than I needed to, resulting in the unnecessary payment of $6 more in taxes that I didn't really owe. I hope it got spent on ethanol subsidies.

--fleg
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In 2000, that turned into 217 shares of Viacom. There was no cash paid out at the time -- no cash-in-lieu, no partial dividends, no nothing. Just the 217 shares.

Good. Your basis in the 217 shares of Viacom is same as your basis in the 200 shares of CBS - namely your purchase price plus any commission or fees paid at the time of purchase.


Maybe, msybe not. While this was most likely a non-taxable merger, there is the possibility that it was a taxable one, where you should have recorded a sale of CBS and a purchase of Viacom. You would have a new cost basis and holding period. The answer is in the documentation provided by CBS at the time of the merger.

Ira
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While this was most likely a non-taxable merger, there is the possibility that it was a taxable one, where you should have recorded a sale of CBS and a purchase of Viacom.

I found the documentation and it says non-taxable.

I also found all the documentation I need for the Citigroup sale. I can see now, after having read responses on this thread, that I could have saved $10 or $15 if I had calculated the basis for cash-in-lieu transactions in the past instead of taking a $0 basis.

Citigroup was fun because it spun off two entities, TPC-A and TPC-B, with some cash-in-lieu for each entity. Then some years later, the two entities merged, generating a couple more cash-in-lieu events. Using company documents, I got to calculate the basis of Citigroup after the spinoffs and the basis of the new entity formed by the merger of the spinoffs. Ain't taxes grand?

--fleg
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