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.

Wash sale activity can further complicate the arduous task of tracking and adjusting for corporate actions. GainsKeeper's wash sale algorithms are synchronized with corporate action activity to alleviate this problem.

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. 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 investors choose to reinvest their dividends and capital gains distributions.

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 investors' portfolios. If a stock split occurs, the share amount will increase, the overall cost will remain the same, and the per-share cost will change. If a merger occurred, investors will no longer see the security that was acquired in their accounts; they will see the new security.

GainsKeeper processes most actions the night before in a nightly batch so that investors 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 investors will be able to see the results on the evening of distribution date.