Hi,

I have a DRIP for Conoco Philips and in 2012, it had a spin off Phillips 66. I got a 1099-B for the partial share of Philipps 66 that was sold during the spin-off and I am having trouble calculating the cost basis that was reported.

I saw on the Conoco Phillips web site I had to use the percentage used in form 8937 where 77.09% should be allocated to my Conoco Phillips stock and 22.915 for Philipps 66. I added up all of the costs (used to buy the stock) since I started buying Conoco Phillips and divided it by this percentage which I then divided by the number of shares I got of Phillips 66 and then I multiplied that number by the franctional share that was sold. I came up 2 dollars short of what was stated in the 1099-B. Is there a way for me to find out how the 1099-B was calculated? Can I contact Computershare for this or should I contact Phillips 66 directly for details?

Thank you.

In response to slr2's comment:

Hi,

I have a DRIP for Conoco Philips and in 2012, it had a spin off Phillips 66. I got a 1099-B for the partial share of Philipps 66 that was sold during the spin-off and I am having trouble calculating the cost basis that was reported.

I saw on the Conoco Phillips web site I had to use the percentage used in form 8937 where 77.09% should be allocated to my Conoco Phillips stock and 22.915 for Philipps 66. I added up all of the costs (used to buy the stock) since I started buying Conoco Phillips and divided it by this percentage which I then divided by the number of shares I got of Phillips 66 and then I multiplied that number by the franctional share that was sold. I came up 2 dollars short of what was stated in the 1099-B. Is there a way for me to find out how the 1099-B was calculated? Can I contact Computershare for this or should I contact Phillips 66 directly for details?

Thank you.

 Dear slr2:

There is no need to contact anyone.  They are not reporting the cost of the share on the Form 1099B.  The Form 1099B is telling you that they paid you for a fractional share (companies can not issue fractional shares - they can only track them in their records fro DRIP progams in a pool of such shares for all participants).  The value of the company's one whole share at the date of the spinb-off multiplied by the fractional share from the DRIP program that they couldn't issue and that you gave up as part of the spin-off equals the proceeds.  Since the value of the fractional share given up exceeds the cost to you for the fractional share, you have a capital gain to report.

Hope this helps in preparing your returns!

Mark H. Misselbeck, C.P.A., M.S.T., Tax Principal

Katz, Nannis + Solomon, P.C.

In response to MASocietyofCPAs' comment:

Hello Mark,

Many thanks for your reply. Your comments are helpful. I follow and understand your statement:

"The value of the company's one whole share at the date of the spinb-off multiplied by the fractional share from the DRIP program that they couldn't issue and that you gave up as part of the spin-off equals the proceeds."

These proceeds were reported to me on the 1099 B, Box 2a. However in Box 3, a basis was reported, and this figure is my stumbling block! I cannot figure out how this figure was derived. Your last sentence states: "Since the value of the fractional share given up exceeds the cost to you for the fractional share, you have a capital gain to report"  - I think you touch upon the issue here.. when you write of the cost to me for the fractional shares.. but how do I figure out what the cost to me of the fractional share is?

On my 1099 B, in Box 2a, I have reported to me the proceeds of $19.75, and in Box 3,  I have reported to me a Cost of $17.93, taking the difference of the two figures, I have a gain of $1.82, I realize it is a small amount, but I just want to understand the methodology, and I want to make sure I am reporting everything correctly. As I mentioned in my original post, I researched the issue, and it looks like in a spinoff, I have to allocate my cost basis basis between the original shares of COP and the new shares of PSX. I created a spreadsheet to do this, but still cannot hit the $17.93 that was reported. I would truly appreciate any insight you can offer!We still own the shares of COP and PSX and I just want to make sure I am using the correct basis, so that we can report correctly when it comes time for us to sell the positions.

Thank you so much!

In response to slr2's comment:

Hello Mark,

Many thanks for your reply. Your comments are helpful. I follow and understand your statement:

"The value of the company's one whole share at the date of the spinb-off multiplied by the fractional share from the DRIP program that they couldn't issue and that you gave up as part of the spin-off equals the proceeds."

These proceeds were reported to me on the 1099 B, Box 2a. However in Box 3, a basis was reported, and this figure is my stumbling block! I cannot figure out how this figure was derived. Your last sentence states: "Since the value of the fractional share given up exceeds the cost to you for the fractional share, you have a capital gain to report"  - I think you touch upon the issue here.. when you write of the cost to me for the fractional shares.. but how do I figure out what the cost to me of the fractional share is?

On my 1099 B, in Box 2a, I have reported to me the proceeds of $19.75, and in Box 3,  I have reported to me a Cost of $17.93, taking the difference of the two figures, I have a gain of $1.82, I realize it is a small amount, but I just want to understand the methodology, and I want to make sure I am reporting everything correctly. As I mentioned in my original post, I researched the issue, and it looks like in a spinoff, I have to allocate my cost basis basis between the original shares of COP and the new shares of PSX. I created a spreadsheet to do this, but still cannot hit the $17.93 that was reported. I would truly appreciate any insight you can offer!We still own the shares of COP and PSX and I just want to make sure I am using the correct basis, so that we can report correctly when it comes time for us to sell the positions.

Thank you so much!

 Dear slr2:

Normally, the rule is that the first shares purchased are the first shares sold.  It may be that the issuer of the Form 1099B used this rule to determine the basis of the fractional share sold.  To find out, you would have to be able to talk to someone in the organization handling the computations for COP and PSX - it likely is not the company, itself.  Try contacting investor relations at one (or both) of the companies and ask for someone specific to speak with regarding this issue.  Failing that, your choices are to either use the basis supplied and accept it as correct, or report their basis and use the codes for the Form 8949 to make an adjustment to align with the basis you've computed.

Hope this helps in preparing your returns!

Mark H. Misselbeck, C.P.A., M.S.T., Tax Principal

Katz, Nannis + Solomon, P.C.

In response to MASocietyofCPAs' comment:

Thank you for your reply. Another question for you on this topic. On this 1099 B that I received regarding this sale of a fractional share, in Box 1b, Date of Acquisition, the date 4/30/12 is reported. This is the same as the date of sale or exchange in Box 1a, however, in Box 1C, "Long-term" has been reported. We are using Turbo Tax... if I report that date of acquisition is 4/30/12, but then type of gain as "long-term," won't this set off a discrepancy for the IRS? Per your comment, if the rule is FIFO, then should my date here be the first time we bought shares in COP back in 2005? If I use 2005 though, this will be different from the 1099B... I am uncertain as to how to handle this? Thank you so much.

In response to slr2's comment:

In response to MASocietyofCPAs' comment:

In response to slr2's comment:

Hello Mark,

Many thanks for your reply. Your comments are helpful. I follow and understand your statement:

"The value of the company's one whole share at the date of the spinb-off multiplied by the fractional share from the DRIP program that they couldn't issue and that you gave up as part of the spin-off equals the proceeds."

These proceeds were reported to me on the 1099 B, Box 2a. However in Box 3, a basis was reported, and this figure is my stumbling block! I cannot figure out how this figure was derived. Your last sentence states: "Since the value of the fractional share given up exceeds the cost to you for the fractional share, you have a capital gain to report"  - I think you touch upon the issue here.. when you write of the cost to me for the fractional shares.. but how do I figure out what the cost to me of the fractional share is?

On my 1099 B, in Box 2a, I have reported to me the proceeds of $19.75, and in Box 3,  I have reported to me a Cost of $17.93, taking the difference of the two figures, I have a gain of $1.82, I realize it is a small amount, but I just want to understand the methodology, and I want to make sure I am reporting everything correctly. As I mentioned in my original post, I researched the issue, and it looks like in a spinoff, I have to allocate my cost basis basis between the original shares of COP and the new shares of PSX. I created a spreadsheet to do this, but still cannot hit the $17.93 that was reported. I would truly appreciate any insight you can offer!We still own the shares of COP and PSX and I just want to make sure I am using the correct basis, so that we can report correctly when it comes time for us to sell the positions.

Thank you so much!

 Dear slr2:

Normally, the rule is that the first shares purchased are the first shares sold.  It may be that the issuer of the Form 1099B used this rule to determine the basis of the fractional share sold.  To find out, you would have to be able to talk to someone in the organization handling the computations for COP and PSX - it likely is not the company, itself.  Try contacting investor relations at one (or both) of the companies and ask for someone specific to speak with regarding this issue.  Failing that, your choices are to either use the basis supplied and accept it as correct, or report their basis and use the codes for the Form 8949 to make an adjustment to align with the basis you've computed.

Hope this helps in preparing your returns!

Mark H. Misselbeck, C.P.A., M.S.T., Tax Principal

Katz, Nannis + Solomon, P.C.

Hi Mark,

Thank you for your reply. Another question for you on this topic. On this 1099 B that I received regarding this sale of a fractional share, in Box 1b, Date of Acquisition, the date 4/30/12 is reported. This is the same as the date of sale or exchange in Box 1a, however, in Box 1C, "Long-term" has been reported. We are using Turbo Tax... if I report that date of acquisition is 4/30/12, but then type of gain as "long-term," won't this set off a discrepancy for the IRS? Per your comment, if the rule is FIFO, then should my date here be the first time we bought shares in COP back in 2005? If I use 2005 though, this will be different from the 1099B... I am uncertain as to how to handle this? Thank you so much.

Dear slr2:

There is a clear conflict between their date of acquisition and the classification of the gain as long term.  It would seem that the person who prepared the form believed that the date of the spin off is the date of acquisitoin, when the tax laws provide that this is a tax deferred transaction (no gain, except for sales of fractional shares for cash) because you otherwise only received shares in the "new" company.  In such cases, the date(s) of acquision of the original company's stock become the date(s) of acquisitoin of the related, proportional shares of the "new" company issued to you.  You are entirely justified in using the date from the original purchase for the trade, but may need to explain this to the IRS, should they raise a question, based on the Form 1099B date provided by the company.

Hope this helps in preparing your returns!

Mark H. Misselbeck, C.P.A., M.S.T., Tax Principal

Katz, Nannis + Solomon, P.C.