IAC spun off IAC class M shares effective July 1, 2020 in a transaction meant to be tax-free to its shareholders. IAC class M shares then merged with Match to form new Match.

In their example, IAC used the average of the high and low prices on April 3, 2017 to calculate the cost basis allocation.

Resolution:

The resolution depends on which stock was owned for Match shareholders, and which of the two options were selected.

For IAC shareholders this is a standard spinoff transaction in the accounting software.

For Match shareholders this can be *either* a standard stock split, *or* a merger with cash, depending on their election. The information below is based on the information available from the cost basis allocation information on the IAC web site from form 8937 and SEC filings.

 

IAC shareholders

The Spinoff Entry

Go to Transactions > Spinoff  or Accounting > Securities > Record spinoff of securities depending on the version of the software being used. If you are unfamiliar with spinoff transactions you can get help at this URL: https://www.iclub.com/support/kb/default.asp?page=normal_spinoff

Here is the information you need to complete the spinoff.

• Date: 7/1/2020
• Select Parent Security (or Parent Company) : IAC (IAC)
• Remaining Basis Percentage: 31.874
• Cash received:  See your broker statement for cash-in-lieu received
• Spinoff  Security (or Symbol of New Company) : Match  (MTCH)
•  Shares received : 2.1584 x (# of IAC  shares owned)   (Remember to include fractional shares.)
• For example, if you owned 100 IAC shares, you should receive 2.1584 x 100 = 215.84 MTCH shares.
• Price Per Share : 105.67  (Closing price on 7/1/2020)                                                                    

Save the transaction and the spinoff has been entered.

 

NOTE:

The cost basis allocation is dependent on the prices used for both IAC and Match in the cost basis calculations. In our experience brokers tend to use the prices found in the guidance companies post on their websites including IRS form 8937. If your broker does not use that guidance, the cost basis of the companies involved as recorded in your accounting records and in your broker’s records will not match. This is not cause for concern. This is just due to the inexact nature of the tax code in this regard. Partnership tax returns have specific areas to reconcile these usually small differences. ICLUBcentral tax printer software automatically fills in these adjustments in the normal operation of the software using the data imported from your accounting records and that you enter from your 1099.

 

 

 

Match Shareholders

Match shareholders had a choice between receiving 1.0337 shares of new Match for each old Match share or receiving one new Match share plus $3 cash for each old Match share. Each option has different tax consequences. If no election was made, the default was the all stock option. Most investment clubs would fit into the all stock option. Instructions for that option will be displayed first.

 

All Stock Election (default)

The all stock option can be treated as a standard stock split. Here is the information you need to enter the transaction.

• Date : 7/1/2020
• Company : Match (MTCH)
• Split ratio :  1.0337 to 1
• Cash Received : See you broker statement for cash-in-lieu amount
  • NOTE: If your club held fractional shares of Match (MTCH) before this transaction, cash entered for fractional shares may not sell the correct fractional shares. If that happens, enter the split without the cash amount, and then enter a sale of the correct number of fractional shares a day later for the cash received.

 

Cash and Stock Option (Merger with cash)

If a club elected the cash and stock option, this transaction is treated as a merger with cash. For myICLUB users use the merger with cash transaction. For Club Accounting 3 users some calculations will need to be manually made before the entries can be made. Due to the details of the Match/IAC transaction the surviving company was the IAC spinoff which then took the name of Match.

A second merger will accomplish the name change.

 

Note: In Merger with cash transactions, realized capital gains and the cost basis of the new shares have a component dependent on the price per share entered in the entry screens. In our experience brokers tend to use the price per share published by the companies on their websites in their guidance to shareholders. If the companies publish guidance with a share price, we use that share price in our instructions to minimize possible differences between the accounting records and broker information. In cases where no guidance is available, we will choose the lower of the opening or closing price on the effective date. Either of these prices is acceptable to the IRS and by choosing the lower price some realized capital gains will be deferred to a later date. However, there is always the chance the price we choose will not be the price chosen by your broker. The gain from the merger and cost basis of the new shares recorded in your accounting records will then differ from your broker information. Because of the lack of detail in the tax code, both our choice and your broker’s choice would be reasonable estimates of market value for the shares received. Your records are NOT incorrect because they differ from your broker. Tax return forms do have specific areas to report these usually small differences. Our tax printer software handles these adjustment entries automatically in the normal operation of the software. 

 

 

Match Shareholders - Stock + Extra Cash Option

 

For myICLUB users

For the first transaction, use the Merger With Cash transaction.

Step 1

Date – 6/30/2020

Merging Company – Match (MTCH)

Step 2

Be sure to choose the option Transaction is taxable to a maximum of the cash received.

Cash per share received:  3.00

Exchange ratio of new to old shares: 1.0

Price per share of new shares on merger date: 105.67

Reorganization Fee: See your broker statement

 

Symbol of New Company:  IACM

Shares received and Price per Share should auto-fill from information above.

Cash Received: See your broker statement for cash-in-lieu amount.

 

For the second transaction, use a standard Merger

The second merger is a simple merger of IACM into the new Match (MTCH).

Here is the information you need to complete the merger.

Date: 7/1/2020

Old Security or Merging Company: IACM (IACM)

Price per share of old Security / Old Match: 105.67

Cash received:  See your broker statement for cash-in-lieu

New Security: Match (MTCH)

Shares received:  1.0 x (# of IACM shares owned)

            (Remember to include fractional shares.)

Save the transaction and this is finally done.

 

 

For Club Accounting 3 users

 

To record this merger will require multiple entries in the Club Accounting 3 software. The basic outline of these entries is given below:

Calculate the capital gains, both long-term (LTCG) and short-term (STCG) on a block by block basis. Adjust for the structure of the merger (Gain can be no greater than cash received and losses may not be recognized.)

Enter capital gain distributions for the LTCG and STCG.

Enter a smaller Return of capital for the remainder of the cash received, if any.

Enter the actual merger transaction

The capital gain realized is limited to the actual cash received so some clubs may need to adjust the capital gain amounts before entering the capital gain distributions. Instructions for doing this are included. The total merger consideration is $108.67 per Old Match share. Your capital gain will be based on this total consideration with a limit that the total capital gain cannot exceed the total cash received, excluding cash-in-lieu of fractional shares.

 

1. Calculate the capital gain.

The total merger consideration is $108.67 per old Match share. This is $3.00 in cash and $105.67 in IACM (new Match) shares. Calculate the total value received for your old Match shares by multiplying 108.67 by the total shares of Old Match owned. This must be done on a block by block basis.

Total Proceeds = [108.67 x (# of Old Match shares owned in each block)]. (Do this calculation for each block of shares.)

Write down the total proceeds amount on paper or spreadsheet for each block of Old Match shares owned. From the total proceeds subtract the cost basis of that particular block. This will give you the gain for each block of Old Match shares using the total proceeds. Ignore any blocks with a loss. The cost basis can be found by starting a partial sale of Old Match. A block selection screen will appear with the date purchased, number of shares and current cost basis for each block. Copy this information then cancel the sale.

Next calculate the cash received for each block, for those blocks with a capital gain. The equation for this is [3.00 x (# of Old Match shares owned in each block)]. For each block compare the cash received for that block with the capital gain calculated previously for that block. The smaller of the numbers is your gain from that block. Remember to ignore any blocks with a calculated loss using the total proceeds equation. Once you have the adjusted capital gain for each block with a gain, which is the smaller of a) the cash received or b) the total proceeds gain, add all the gains from each block with a gain. This will be your total capital gain for this merger. Remember to differentiate between short term and long-term gains. (Check the purchase date of each block and compare it to the merger completion date of 7/1/2020.)

You should now have a figure for long-term and short-term capital gains recognized from this merger. If this amount is less than the total cash received, not including cash-in-lieu for fractional shares, then subtract the sum of your capital gains from the total cash received. This will be [3.00 x (total # of Old Match shares owned)] – (sum of capital gains). This amount will be entered as a return of capital.

 

1. Accounting for Cash Received

All of the following entries use the cash dividend screen, in CA3 this is Transactions > Cash Dividend or Distribution.

Date these transactions 6/30/2020

The security should be Old Match

Change the “type” field to Long-term capital gain.

Amount should be your LTCG as calculated above.

Next repeat the process for your short-term capital gain.

Change the “type” field to Short-term capital gain.

Amount should be your STCG as calculated above.

Finally, enter a return of capital entry, if needed.

Change the “type” field to Return of capital.

Amount should be:  (Total Cash received) – (LTCG + STCG)

If your LTCG + STCG = Total Cash Received, no return of capital entry is needed.

Continue to step 3, The Merger.

 

1. The Merger

Since there is not a share number difference in the cash and stock option between the new and old companies and the new company took the name of the old company, you can skip a merger transaction. The capital gains, if any, were accounted for in the previous steps. Please note that Club Accounting 3 was designed when merger with cash transactions were quite rare. If you owned more than 1 block of Match the total cost basis will be accurate but the distribution of basis among multiple blocks may not be off a bit. We strongly suggest switching to myICLUB as it has a transaction specifically designed such mergers. As you can see in this document, the instructions for entering this transaction are much simpler for myICLUB users, and involve no user calculations before making the entries.

 

A worksheet is provided below to record the items that need to be calculated for the gains from the merger with cash.

 

 

1. A. Total Proceeds received.

      108.67 x (# of Old Match shares in block)  =  ­­­­­­­­­­­­­­­­­­­­­­­­____________________________

 

1. B. Total cash received.

[3.00 x (# of Old Match shares in block)] = ________________

 

1. C. Cost Basis of this block of Old Match shares _______________ (from accounting records)

 

1. D. Total Proceeds LTCG =   _____________________ (A-C)   fill-in D or E as appropriate

 

1. E. Total Proceeds STCG =   ____________________(A-C)      fill-in D or E as appropriate

 

1. Actual LTCG ___________________  (the lessor of B or D.)

 

1. Actual STCG ____________________(the lessor of B or E.)

 

1. LTCG + STCG = __________________.

 

1. Return of Capital amount = (Total Cash Received) – (LTCG + STCG) = ______________

            Use this if (LTCG + STCG) is less than Total Cash received.

 

1. Shares of IACM Received = 1.0 x (# total of Old Match shares owned) = _________________. (For the merger transaction)