Pfizer (PFE) did a share spinoff into Viatris (VTRS) by joining Mylan with Pfizer’s Upjohn. I received a few shares, whole and fractional, and my brokerage sold the fractional. At tax time, my brokerage provided me with a .pdf which I loaded into Turbotax, but the .pdf did not provide the “cost basis” for the fractional 0.021 Viatris share sold and which I was credited for with $0.32. An error was detected and I was requested to add the missing information. How would I do that? As far as I understand, it goes something like this:
When we say that there was a share spinoff, we are saying that the company decided to separate a portion of the operations into another company. The new shares also have some sort of cost basis, because we obtained these new shares as a result of already owning some other share that also had a cost basis. The allocation is calculated based on relative fair market values for both companies after the spinoff. The relative fair market values are usually determined by the average high and low trading prices AFTER the spinoff and on IRS Form 8937.
So where is Form 8937? Viatris’ website has a “Where can I find IRS Form 8937?” in their FAQ, but the answer has only 2 pages. However, I was able to find a 5-page version containing their “Attachment to Form 8937” that explains in Line 16 how you might find tax basis, which is in this case is the same as the cost basis TurboTax wants. Sale of the new company’s shares uses a percentage of the original cost basis for the original company. Pfizer’s filed Form 8937 suggested 94.8% for Pfizer and 5.2% for Viatris.
The formula is then:
Cost Basis of Sold Shares = [(Total_Original_Cost_Basis * 0.052) / Total_Spinoff_Shares] * Sold_Spinoff_Shares
For me, it meant:
My total cost basis for Pfizer was originally $4466.89, calculated by 113 shares averaging $39.53 each.
5.2% of my cost basis was now given to Viatris. $4466.89 x 0.052 = $232.27828 for my total spinoff Viatris cost basis.
I was granted a total of 14.021 shares of Viatris. $232.27828 / 14.021 = $16.566456, which is cost basis for each individual full share of Viatris.
Now that I know the cost basis of a single full share, I can multiply it by 0.021 to find out my cost basis for the sold fractional share. $16.566456 * 0.021 = 0.34789558 , which rounds to $0.35.
