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 Corporate Action

A corporate action is any material change to a security, including name changes, stock splits, spin offs, and mergers, to name just a few. In many cases, a corporate action will result in a new position or a change to the cost basis of the security. Not surprisingly, it is up to the investor to make all the necessary cost basis adjustments for each security. With over 6,000 corporate actions annually that affect a stock's cost basis, the odds are good that an investor will encounter one sooner or later. Some corporate actions are manageable; however other corporate actions require more laborious calculations. Each corporate action type has its own rules that investors must learn if they are to accurately complete their  Schedule D forms.

The arduous task of tracking and adjusting for corporate actions can be further complicated by wash sale activity. GainsKeeper’s wash sale algorithms are synchronized with corporate action activity to alleviate this problem.

Some Types of Corporate Actions

Merger: A merger is a corporate action that results when two companies join together to form one company. Mergers can be taxable or non-taxable. If a merger is taxable an investor will need to realize an "artificial" sale and re-purchase the security. For a non-taxable merger an investor will need to allocate the cost basis to the new security.

Spin Off: A spin off is a corporate action that occurs when a company distributes part of its assets to form a new publicly traded company. When a spin off occurs stockholders of the parent company receive shares of the new company in the form of a stock dividend.

Stock Split: A stock split is a corporate action that occurs when a company changes the amount of shares it has outstanding and then adjusts each share's price accordingly. The number of shares received as a result of a stock split is a ratio of the total shares owned right after the split. Stock splits are usually non-taxable. It is important to note that after a stock split the number of shares owned in the security and the cost basis of those shares will change. Often stock splits are expressed as a fraction. A two for one stock split, where the investor receives one additional share for every share owned in the security, is the most common type of stock split.

Example of a Corporate Action

How GainsKeeper Treats Corporate Actions

GainsKeeper monitors all corporate actions for U.S. equities and automatically adjusts each position.  In many cases, a corporate action will result in a new position and/or a change to the cost basis of an existing position.  Currently, GainsKeeper tracks corporate actions from January 1, 1999 forward. The process of rebuilding positions prior to 1999 is not a simple operation. There are as many as 6,000 corporate actions that occur each year. For questions on corporate actions prior to January 1, 1999 we suggest the investor contact the issuer directly. Many companies provide extensive information on their web sites within their investor relations' section.

GainsKeeper processes corporate actions that affect cost basis or capital gains tax for the Schedule D. We do not process cash distributions, such as interest income, cash dividends or capital gain distributions. Brokerage and mutual fund firms have an obligation to supply this information to investors. And, not all users choose to reinvest their dividends and capital gains distributions. If you do reinvest your dividends, please record them by using the DivRe action type within the Record Stock or Record Mutual Funds choices in GainsKeeper.

GainsKeeper uses security market values on corporate action effective date (i.e. ex date for spin offs) to allocate cost to new securities and to calculate gain/loss for taxable events. This is an industry standard and audit accepted practice used to arrive at accurate and consistent calculations. Nevertheless, different organizations may use varying approaches. It is possible that an investor may receive a slightly different calculation if the company mails the corporate action cost information. IRS guidelines dictate that cost should be allocated based on fair market value on distribution date. GainsKeeper has developed a proactive approach so that investors can see their cost and gain/loss positions, as well as work with their new securities without having to wait for a mailing to arrive from the company long after they need the information.

GainsKeeper automatically processes corporate action adjustments in users’ portfolio. If a stock split occurred, the share amount will increase, the overall cost will remain the same, and the per share cost will change. If a merger occurred, users will no longer see the security that was acquired in their account; they will see the new security. GainsKeeper will show users the corporate action in their symbol history. Users can view this history from GainsTracker / Symbol Details. By using this feature investors can view all of their transactions that have occurred in this particular symbol, such as buys, sells, corporate actions and wash sales adjustments.

GainsKeeper processes most actions the night before in a nightly batch so that users can see their new updated positions on the morning of ex-date (the date the action is effective). Mergers and spin offs are an exception to this rule. The GainsKeeper operations team uses market values on distribution date (effective date) to properly account for cost and gain/loss calculations. Therefore, GainsKeeper will process mergers and spin offs after the market closes on distribution date. GainsKeeper will run an additional batch to process these actions, and users will be able to see the results on the evening of distribution date.

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