New sponoff: Viatris (VTRS) - how to add to MD portfolio

mjw's Avatar

mjw

18 Nov, 2020 03:31 PM

Overnight, I seem to have acquired a new stock in my TDA IRA. Specifically, My TDA account now says I have 37 shares to Viatris (VTRS) for which I paid $0.00 and wasn't there the night prior. TDA lists the transaction as "NON-TAXABLE SPIN OFF/LIQUIDATION DISTRIBUTION" for $0.00. But TDA also lists this new stock in my portfolio as having a purchase price of $15.46327/share. I understand that there was an Upjohn spinoff that created this new equity and simply because I own some Pfizer stock I was entitled to these new shares of VTRS. Great, right? But I don't know how my MD transaction entries should look like. Any ideas?

  1. 1 Posted by Mike Bray on 18 Nov, 2020 03:48 PM

    Mike Bray 's Avatar

    Quite an interesting one. I assume you want to register the new stock in
    your portfolio without reducing your cash value of your investment
    account. My suggestion would be:

    1. Create the stock using Tools/Securities
    2. Add the stock to your investment account using the 'Add Security' on
    your portfolio screen
    3. Enter a new transaction which is a Buy of the number of shares you
    want at a cost of $1.00. This will reduce your cash position by the
    number of shares
    4. Enter a new transaction which is a MiscInc for the number of shares *
    $1.00.  This will restore your cash position.
    5. Edit the History of the new stock in the investment account and set
    the price to $15.46327.

    At the end of this you will have the stock registered against the
    investment account, at the price given ($15.46327). The only issue is
    your income is out by the number of shares times $1.00. As long as you
    give a memo to this describing what it is there for, you should remember
    when you do your annual reporting.

    This is just a suggestion.
    Regards
    Mike (a fellow user)

  2. 2 Posted by mjw on 18 Nov, 2020 04:15 PM

    mjw's Avatar

    Thanks Mike! This seems like an adequate workaround. I'm guessing I'll have to implement the same workaround when IBM spins off their "Newco" in the near future. I have no idea how many shares I'll be getting but it's probably a small number similar to the Pfizer thing.

  3. 3 Posted by dwg on 18 Nov, 2020 07:53 PM

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    I'm fellow user.

    Usually with spinoffs and de-mergers to get an idea on how to account for it in Moneydance it is usually necessary to understand how the transaction was structured, for example where I am in recent times I have seen three different methods:

    1. A special dividend was paid that was used to purchase the new stock.

    2. A capital return was paid which was used to purchase the new stock.

    3. A part sale of the existing stock was used to fund the purchase.

    I'm sure other methods could also be used. Each of the above has different effects on cost basis, taxation of income or taxation of capital gains/losses, hence different ways of being handled in Moneydance.

  4. 4 Posted by mjw on 18 Nov, 2020 09:23 PM

    mjw's Avatar

    dwg,
    Right, except those aren't applicable in this case. As I stated, these 37 new shares of VTRS fell out of the sky. They probably shouldn't even be called a transaction as there was no exchange of anything. It was unearned. They were like a $600 gift. No charge. Gratis. I have no idea why Pfizer/Upjohn arranged their spinoff to include this "gift". But I'm not looking this gift horse in the mouth. I've had lots of interesting transactions in my portfolio including a couple of the ones you mentioned but never had this sort of freebie before.
    At first I was going to liquidate it (VTRS) since there's no dividend with it but after I took a look at their drug pipeline I decided to stick with it for awhile and see what happens.

  5. 5 Posted by dwg on 18 Nov, 2020 09:45 PM

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    It sounds like it is more akin then to bonus shares, historically not an unknown thing.

    Often such shares have a initial value, which equates to the value of the gift.

    Now were I am the gift is generally tax free, however for the longer term I need to have a cost base for the shares and it is not 0 it is the value of the gift which equates to the number of shares x the initial value per share so this becomes the buy transaction, for the funds to "purchase" these shares I can either change the initial value of the account, or create a tax free category to draw the funds from.

  6. 6 Posted by Jeremy on 21 Nov, 2020 03:03 PM

    Jeremy's Avatar

    Thank you Mike. That workaround made things whole. Appreciate it.

    Thank you for posting mjw as I was trying to solve this for quite some time this morning before heading to the community.

  7. 7 Posted by Henry Sully on 21 Nov, 2020 05:14 PM

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    I had the same thing occur this week. After a couple of days, Fidelity reduced my cost basis of PFE, so the difference seems to be used to purchase VTRS because now my cost basis of VTRS is the same amount, except for the fractional share. Fidelity deposited cash into my account for the fractional share.

    I normally will do a sell of 0 shares for the amount of the reduced cost basis (PFE in this case). If I sell PFE later, my capital gains will reflect the reduced cost basis.

    I entered a buy of VTRS for the amount of refunded cost of PFE, minus the cost of the fractional share. This left a balance of cash in the account for that fractional share. Unfortunately, the amount of cash I got from Fidelity for the fractional share that occurred later did not exactly match the cash I had in my balance. So, not sure what to do about that. I suppose I could do a MiscInc or MiscExp to balance. Any suggestions?

    Also, I don't know how that fractional share will be handled for taxes. Is it a dividend, return of capital, or a capital gain? I have not actually sold any PFE or VTRS to date.

  8. 8 Posted by sprimost on 21 Nov, 2020 05:44 PM

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    From: sprimost

    Just a user <disclaimer: _not_ tax advice! and definitely not a
    financial advisor)

    In the US, this event is considered a return of capital. It reduces the
    cost basis of the investment.

    I guess there are a few ways of handling it. It has happened to me a
    couple of times. Generally (what I did), a MiscExp transaction will
    reduce the investment cost basis. After you have created the seurity and
    added it to an account, a xfr into that account, and a buy for x shares,
    will establish the cost basis of the new security. A fractional share
    that is redeem can be xfr to your checking account.

    You should see the cost basis of the investment reduced (in Portfolio
    view containing the original security) and a new cost basis established
    for the new security. I did this in steps so as to check that basis was
    maintained. MD is very "picky" about having two sides to a transaction.
    Your end-or-year statement will show this event as nontaxable.

    Hope this helps.

    /scp

  9. 9 Posted by dwg on 21 Nov, 2020 07:41 PM

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    A Return of Capital is a very common way of handling spinoffs.

    It creates a deferred tax event in that the cost basis of your existing shares is reduced. It is reflected in taxation when you sell your shares as the Capital gain will be greater (or the capital loss lower) Any cash received from a RoC is generally not taxable at the time since it is reflect in a later capital gains tax event.

    The one exception I can think of is that in some jurisdictions you are not allowed to have a negative cost base, so If your cost basis is so low that the return takes it to negative territory you end up with a 0 costs basis and the difference becomes a current year Capital gain.

    I'm not a tax accountant or financial advisor so in such events you may well need professional advise. I just happen to have some shares lots with a 0 cost basis

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