- quote -

I was told via email that this was the WRONG calculation to
use for the gain and for the reports to the IRS so I post
this for the others who follow my calculation example for
THEIR stock to benefit.

Use the correct calculation for YOUR gain - do not use my
calculation above.

I don't know what forumula to use, but the emails to me said
that I was totally wrong in posting this formula for the
total gain so please ignore it.

I do think the tax calculation part was correct though but
it would be nice if someone confirms that before others use
it as a real-life example for their personal share-split tax
calculations.

Sue

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Seth Breidbart wrote:

- quote -

I received the help I needed from another newsgroup.

With their and your help, I belatedly see the many errors in
my tax thinking. I repeat the essential tax calculations
below (fixing all my real errors) so someone else can easily
follow the proper methodology, even if they were to own a
different stock than I.

Note that four significant figures are often employed
(sometimes six when necessary to avoid mismatches) to
minimize rounding confusion when dropping back to two
decimal places.

Hopefully this helps others avoid pulling their hair out for
taxes!

A. In 1998, you pay $5,475.40 for 100 shares of Hewlett
Packard (HWP). All calculations below are unavoidable tax
consequences of that act.

B. On June 2, 2000, shareholders received 0.3814 shares of
Agilent (A) for every share of HWP, resulting in: 100
shares HWP x 0.3814 = 38.1400 shares of Agilent.

You must obtain the HWP to A spinoff calculations from HWP:
http://h30261.www3.hp.com/phoenix.zh...rol-faqAgilent

You must perform the following seven (7) calculations.

1. You must recalculate the HWP cost basis:
The new HWP cost basis was 78% of the original HWP cost basis.
New cost basis for HWP = 78% of the original cost basis for HWP
New cost basis for HWP = 78/100 x $5,475.40
New cost basis for HWP = 0.78 x $5,475.40
New cost basis for HWP = $4,270.8120

2. You must calculate the aggregate Agilent cost basis:
The aggregatge Acost basis was 22% of the original HWP cost basis.
Aggregate Agilent cost basis = 22/100 x $5,475.40
Aggregate Agilent cost basis = 0.22 x $5,475.40
Aggregate Agilent cost basis = $1,204.5880

Proof is the new cost basis should always equal the old cost basis:
Old cost basis HWP = New HWP cost basis + aggregate A cost basis
Old cost basis HWP = $4,270.8120 + $1,204.5880
Old cost basis HWP = $5,475.40 (check)

3. You must calculate the aggregate Agilent cost basis per
share:
Aggregate A cost basis per share = A cost basis/number of shares
Aggregate A cost basis per share = $1,204.588/38.14 shares
Aggregate A cost basis per share = $31.5833/share

4. You must calculate the Agilent fractional share cost
basis:
Agilent fractional share cost basis = 0.14 share x $31.5833/share
Agilent fractional share cost basis = $4.4217

5. You must calculate the Agilent fractional share sale
basis:
Agilent was trading at $81.75 on June 2, 2000 when the
Agilent fractional share was sold beyond your control.
Agilent fractional share sale basis = $81.75/share x 0.14 shares
Agilent fractional share sale basis = $11.4450

6. You must calculate the Agilent fractional long term
capital gain:
Fractional share LTCG = fractional sale basis - fractional cost basis
Fractional share LTCG = $11.4450 - $4.4217
Fractional share LTCG = $7.0233

LTCG taxes must be paid on the $7.03 in tax year 2000.

7. You must calculate the Agilent whole share cost basis:
Whole share A cost basis = Aggregate cost basis - fractional cost basis
Whole share A cost basis = $1,204.5880 - $4.4217
Whole share A cost basis = $1,200.1663

Proof is 38 shares x $31.5833/share = $1,200.1654 (check)

C. HWP split 2:1 on October 27, 2000 resulting in 200 shares
of HPQ. Note the symbol changed from HWP to HPQ at this
point in time.

You must obtain the HWP to HPQ split & symbol change
calculations:
http://h30261.www3.hp.com/phoenix.zh...rol-stockSplit

D. Selling 200 shares of HPQ in 2001 for $5,307.87 triggered
an event:
LTCG for HPQ = sale basis of HPQ - cost basis of HPQ
LTCG for HPQ = $5,307.87 - $4,270.81
LTCG for HPQ = $1,037.06

LTCG taxes must be paid on the $1,037.06 in tax year 2001.

E. On October 31, 2006, shareholders received 0.122435 shares of
Verigy (VRGY) for every share of Agilent, resulting in:
38 shares A x 0.122435 = 4.6530 shares of VRGY

You must obtain the Agilent to Verigy spinoff calculations:

http://media.corporate-ir.net/media_...nStatement.pdf

You must perform the following seven (7) calculations.

1. You must recalculate a new Agilent cost basis:
The new A cost basis was 94.22% of the previous A cost
basis.
New cost basis for Agilent = 94.22/100 x $1,200.1663
New cost basis for Agilent = 0.9422 x $1,200.1663
New cost basis for Agilent = $1,130.7967

2. You must calculate the aggregate Verigy cost basis:
The aggregate VRGY cost basis was 5.78% of the previous
A cost basis.
Aggregate Verigy cost basis = 5.78/100 x $1,200.1663
Aggregate Verigy cost basis = 0.0578 x $1,200.1663
Aggregate Verigy cost basis = $69.3696

Proof is the new cost basis should always equal the old
cost basis:
Old Agilent cost basis = New A cost basis + aggregate V
cost basis
Old Agilent cost basis = $1,130.7967 + $69.3696
Old Agilent cost basis = $1,200.1663 (check)

3. You must calculate the aggregate Verigy cost basis per share:
Aggregate VRGY cost basis per share = VRGY cost basis/number of shares
Aggregate VRGY cost basis per share = $69.3696/4.6530 shares
Aggregate VRGY cost basis per share = $14.9086/share

4. You must calculate the Verigy fractional share cost basis:
Verigy fractional share cost basis = 0.6530 share x $14.9086/share
Verigy fractional share cost basis = $9.7353

5. You must calculate the Verigy fractional share sale basis:
Verigy was trading at $16.80/share on October 31, 2006 when
the Verigy fractional share was sold beyond your control.
Verigy fractional share sale basis = $16.80/share x 0.6530 shares
Verigy fractional share sale basis = $10.9704

6. You must calculate the Verigy fractional long term capital gain:
Fractional share LTCG = fractional sale basis - fractional cost basis
Fractional share LTCG = $10.9704 - $9.7353
Fractional share LTCG = $1.2351

LTCG taxes must be paid on the $1.2351 in tax year 2006

7. You must calculate the Verigy whole share cost basis:
Whole share VRGY basis = Aggregate basis - fractional basis
Whole share VRGY cost basis = $69.3696 - $9.7353
Whole share VRGY cost basis = $59.6343

Proof is 4 shares x $14.9086/share = $59.6344 (check)

F. To exit from this tax calculation misery, you sell all 38
shares of Agilent in December of 2006 for $1,222.39

You must calculate the long term capital gain on Agilent:
LTCG for Agilent = sale basis of A - cost basis of A
LTCG for Agilent = $1,222.39 - $1,130.7967
LTCG for Agilent = $91.5933

LTCG taxes must be paid on the $91.59 in tax year 2006.

G. To end the pain once and for all, you sell the 4 piddly shares
of Verigy in December 2006 for a total of $56.48.

You must calculate the long term capital loss on Verigy:
LTCL for Verigy = sale basis of VRGY - cost basis of VRGY
LTCL for Verigy = $56.48 - 59.6343
LTCL for Verigy = (-3.1543)

Long-term capital losses of -$3.15 exist in tax year 2006.

==================================================
Cash Received:
06/02/2000 = $11.45 (Cash for fractional share of A)
07/01/2001 = 5,307.87 (Sale of 200 HPQ)
10/31/2006 = 10.97 (Cash for fractional share of VRGY)
12/04/2006 = 56.48 (Sale of 4 VRGY)
12/07/2006 = 1,222.39 (Sale of 38 A)
----------------------
TOTAL RECD = 6,609.16
LESS COST = 5,475.40
NET GAIN $ 1,133.76

Reported as:
TAX YEAR 2000 = 7.03 (Gain on fractional share of A)
TAX YEAR 2001 = 1,037.06 (Gain on sale of HPQ)
TAX YEAR 2006 = 91.59 (Gain on sale of Agilent)
TAX YEAR 2006 = 3.15 (Loss on sale of Verigy)
----------------------
Total $ 1,132.53 (Gain over 8 years)

Gain = Principal * Rate * Time
Rate = Gain/Principal/Time
Rate = $1,132.53/$5,475.40/8 years
Rate = 0.0259 (before taxes)
Rate = 0.0259 x 80% (after taxes)

ANALYSIS:
Hewlett Packard was NOT a very good investment!
Gain ~ 3% before taxes
The gain wasn't even worth the tax calculation.
Gain ~ 2% after taxes
==================================================

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joetaxpayer wrote:

- quote -

You are of course correct, while my post was not. After
composing it, I realized my error and found the correct
method via Google.

There was a problem with the communications between here and
MTM HQ and the first message would not SEND. Later, when I
sent the second post, the first one somehow went along with
it.

My apologies to all.

Bill

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Susan Grossman <sgrossman[at]sbcglobal.net> wrote:

[lots of good work deleted for brevity]

- quote -

Not an expert, and I didn't check your math or references,
but it all looks good to me. I see that you did indeed, do
the math and reduce the cost basis in the original HPQ stock
before you sold it in 2001 so that is not a problem. All
that is left to do now is figure the basis for the other
stocks the same way. You are on the right track.

- quote -

Just be thankful that you didn't buy AT&T stock in 1962 like
I did

I have lost track of the number of companies and stocks that
have spun off, merged, re-spun off, and reemerged and
finally becoming the NEW AT&T not to be confused with the
OLD AT&T. I defy anyone to figure the cost basis of the
stock in the new AT&T, keeping in mind that all dividends
from all the spinoffs were reinvested for years.

--
-Ernie-

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William Brenner wrote:

- quote -

Bill, no offense, but this is exactly the wrong way to do
it. While the relative prices may factor into the ratio
finally determined, it's not math that one can just do at
home. Every spinoff has a statement from the company which
will spell out the basis ratios. I posted both of those
links, and the OP posted links as well. A stock trading at
$50 can spin out a stock at $25, but the ratio may not be
the expected 50%. It depends on the number of shares spun to
the shareholders, shares that were sold at IPO of the
spinoff, and assignment of debt or cash reserves. Had the OP
posted her shares and info in her original email, I'm sure
many (including me) would have run the numbers. In the end,
it's straight math (using the published numbers), not very
complicated.

JOE

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William Brenner wrote:
- quote -

Please ignore the above post. It is superseded by my other
one on this subject.

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Susan Grossman <sgrossman[at]sbcglobal.net> wrote:

- quote -

When A was split off, you needed to allocate the cost basis
of HWP to A and HPQ, proportional to their market values
immediately after the split. The same would occur when VRGY
was split off.

When you sold the HPQ, what cost basis did you use? If it
was the full cost of the HWP, that was wrong.

Seth

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Susan Grossman wrote:

- quote -

I believe that you will find the answers here:
http://investor.verigy.com/distributionInfo.cfm

And here:
http://media.corporate-ir.net/media_...l/71/71087/faq
/agilent/taxinfo.pdf

And PLEASE, PLEASE stop pulling your hair out.

Bill

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

Susan Grossman <sgrossman[at]sbcglobal.net> wrote:

- quote -

I assume you mean that your HPW stock spun off 'A' before
you sold it, otherwise you would not have had any parent
stock to spin off from.

In which case you should have figured the cost basis of the
new 'A' stock _at that time_ and REDUCED the cost basis of
the parent HPW stock to reflect that reduction in value. At
the time of the spin off the total value of both stocks and
your total basis in both stocks would have been the same as
before the spinoff.

If you _didn't_ do that, and I assume that you did not,
because you are asking the question now, then what did you
use for the cost basis of the HPW stock when you sold it?
If you didn't reduce it and you used your original basis,
then your current basis for any spinoffs from that stock is
zero (you already used your total basis even though you
should not have).

- quote -

Because you sold the parent stock at a loss and I assume
that you used it's original basis, then you took a larger
loss than you were entitled to, resulting in lower taxes for
you at the time. If this was within the last three years
you may still be able to amend that return to correct the
error -- you might come out ahead overall. If this were
years ago, I think I would just let sleeping dogs lay, and
eat any additional tax this would cost now.

- quote -

Most companies after a spinoff, send work sheets to compute
the new cost basis for the existing shares and the new
shares along with the new stock notice. Most companies also
have the worksheets posted on their investor section of
their web sites.

If my above assumptions are incorrect, then please provide
more information.

--
-Ernie-

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Susan Grossman wrote:

- quote -

Assuming that the first quoted price for each spun off stock
is your basis, here is how to find them:

Go to Yahoo Finance http://finance.yahoo.com/ Enter the
stocks' symbols > For each stock, click on Historical Prices
in the left column > Adjust the End Date to the day
following the Start Date > Click Get Prices and scroll down.

Using this method, I got $14.38 for Verigy on 6/14/06 and
$38.05 for Aligent on 11/19/99.

Please note that I do not guarantee that this method is the
correct one. Perhaps the pros will comment. (I am certain
that they will should I be wrong.)

And PLEASE, PLEASE STOP PULLING YOUR HAIR OUT.

Bill

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Susan Grossman wrote:

- quote -

For Agilent, the basis is 22% of your HP basis, see
http://h30261.www3.hp.com/phoenix.zh...rol-faqAgilent
(you then adjust when you figure basis for VRGY)

For VRGY the basis is .0578 of the Agilent shares basis, see
http://www.schwabpt.com/resources/ac....asp?id=A_VRGY
(this link will offer to download a PDF, if this alarms you,
go to
http://www.schwabpt.com/resources
and enter vrgy to see the link)

Google is your friend.

JOE
JoeTaxpayer.com

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I wish this wasn't so difficult to figure taxes out on a
hundred shares of stock! Here is what I have figured out so
far.

TAX EVENT 1:
In 1998, I paid $5,475.40 for 100 shares of Hewlett Packard
(HWP).

TAX EVENT 2:
On June 2, 2000 I received .3814 shares of Agilent (A) for
each share of HWP, resulting in 38 shares of Agilent with
the .14 share fraction being paid to me in cash.

Agilent was $81.75 on 6/2/2000 so .14 shares x $81.75 =
$11.45 cash.

I calculated a cost basis for Agilent in 2001 of:
Cost basis of A = (Cost of HWP - Value of .14 share of A) * 22%
Cost basis of A = ($5,442.45 - $11.45) * 22%
Cost basis of A = $5,431.oo * 22%
Cost basis of A = $1,194.82

TAX EVENT 3:
100 shares of HWP turned into 200 shares of HPQ, and
HWP ceased to exist. Not only was this a 2:1 split, but the
symbol changed from HPW to HPQ. I don't think this incurred
any taxes though.

TAX EVENT 4:
I sold the 200 shares of HPQ for $5,307.87 in 2001.
The cost basis I used for HPQ on my 2001 taxes was:
Cost basis of HPQ = (Cost of HWP - Value of .14 share of A) * 78%
Cost basis of HPQ = ($5,442.45 - $11.45) * 78%
Cost basis of HPQ = $5,431.oo * 78%
Cost basis of HPQ = $4,236.18

My 2001 tax records show the gain I paid taxes on was:
Long-term Gain = Sale basis for HPQ - Cost basis for HPQ
Long-term Gain = $5,307.87 - $4,236.18
Long-term Gain = $1,071.69

TAX EVENT 5:
On November 1, 2006, each share of Agilent spun off 0.122435
shares of Verigy (VRGY) resulting in 4 shares of Verigy
(VRGY) for my 38 shares of Agilent with the fraction being
paid to me in cash. I guess I first have to figure out how
much that fraction was.

TAX EVENT 6:
I finally decided to put an end to my tax calculation misery
on this stock, so, in December of 2006, I sold the 38 shares
of Agilent for a total of $1,222.39. I guess I can't figure
out the loss incurred until I figure out what the lousy
fractional share was worth and what the new cost basis of
Agilent was given it spun off Verigy.

TAX EVENT 7:
At the same time, since the Verigy calculations caused more
misery than the stock was worth, I also sold the 4 shares of
Verigy for a total of $56.48.

Does all of this make any sense to you experts? Am I going
in the right track at least? I wish they didn't make this so
miserable for nothing.

Sue

REFERENCES:
Agilent to Verigy spinoff calculations:
http://www.schwabpt.com/resources/actions/library
/A_VRGY_01Nov06.pdf
http://media.corporate-ir.net/media_...irol/10/103274
/VRGY/VRGY_InformationStatement.pdf

Hewlett Packard to Agilent spinoff calculations:
http://h30261.www3.hp.com/phoenix.zh...rol-faqAgilent

Hewlett Packard HWP to Hewlett Packard HPQ stock split
calculations:
http://h30261.www3.hp.com/phoenix.zh...rol-stockSplit

So far, I read everything above and here's what I've
calculated so far which may help other Hewlett Packard share
holders.

Moderator:
www.tiny.url converts long URLs into URLs that are
significantly easier to use!

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How do I figure out the COST BASIS of Verigy stock?
I'm pulling my hair out in frustration.

Long ago I bought HWP (Hewlett Packard) and long ago sold it
(as HPQ). Meanwhile, HWP dividended off A (Agilent) which in
itself dividended off VRGY (Verigy).

In 2006 I finally sold both the A and VRGY shares,
completing the sale.

My problem is that I have no idea what my COST BASIS is for
the A and VRGY shares are (I sold the HPQ at a loss a few
years ago).

Can you tell me HOW I am supposed to get my cost basis for
tax purposes on the A and VRGY shares?

Sue

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >