How do I report a spinoff distribution on shares I received which have no assigned value?

Forum|Forum|3 years ago
February 18, 2023
1 reply
0 views

I was recently involved involved in a spinoff taxable event at the end of Dec 2022. It involved META preferred shares that received 1:1 stock in a spinoff company Next Bridge. The preferred shares (ticker was deleted) due to corporate action and the new common shares I received in the Spinoff are private and have no value assigned at this time. This share exchange from the spinoff will not show up my 2022 1099 per my broker because the private shares have no value, and I did not sell any of my preferred shares prior to the spinoff, but yet the spinoff itself is a reportable event for my 2022 taxes. How and where would I report this as a share exchange on my taxes? Where am I supposed to come up with a fair market value of these private shares?

I reached out to the META the parent company who spunoff the new company Next Bridge for any addition information regarding tax and this was their reply:

META INTENDS TO COMPUTE A VALUATION FOR THE COMMON STOCK DISTRIBUTED IN THE SPIN-OFF. TO DO SO WILL REQUIRE META TO COMPUTE ITS EARNINGS AND PROFITS FOR 2022 FOR TAX PURPOSES. THIS WORK, AS INDICATED IN PAGE 31 OF THE PROSPECTUS IS LIKELY TO REQUIRE UNTIL AFTER U.S. HOLDERS FILE THEIR U.S. TAX RETURNS. META STRONGLY RECOMMENDS THAT ALL RECIPIENTS OF THE NEXTBRIDGE COMMON STOCK SEEK ADVICE FROM THEIR TAX ADVISORS WITH REGARD TO ESTIMATING THE VALUE OF THE COMMON STOCK RECEIVED IN THE SPIN-OFF SINCE, AS STATED ON PAGE 30 OF THE PROSPECTUS, ANY VALUE ASCRIBED BY META IS NOT BINDING ON ANY TAX AUTHORITY.

THE WORK REQUIRED TO ASCRIBE A VALUE TO THE COMMON STOCK IS COMPLEX AND TIME CONSUMING. IT IS UNCLEAR WHEN THIS WORK WILL BE COMPLETED BY META AND ITS OUTSIDE ADVISORS. META NEEDS THESE DATA BY THE EXTENDED DUE DATE FOR ITS US TAX RETURNS WHICH OCCURS IN SEPTEMBER 2023. IT IS STRONGLY ADVISED THAT RECIPIENTS OF THE COMMON STOCK SEEK GUIDANCE FROM THEIR TAX ADVISORS WITH RESPECT TO THE APPROVAL TREATMENT OF THE DISTRIBUTION.

The link to their prospectus- tax info starts on bottom of Pg.30

https://www.sec.gov/Archives/edgar/data/1936756/000119312522292114/d302576d424b4.htm

Any assistance on how to handle is appreciated!!

Thank you

ErnieS0

File an extension to be safe. If you ignore the distribution or enter an incorrect value you will have to amend your return.

Meta Materials says, “This work, as indicated in page 31 of the prospectus is likely to require until after U.S. holders file their U.S. tax returns.

Preferred shareholders may have a taxable event. Meta says it will value the common shares but “this valuation is not binding on the IRS or any other taxing authority.”

“These taxing authorities could ascribe a higher valuation to the distributed Common Stock, particularly if, following the Spin-Off, those shares of Common Stock trade at prices significantly above the value ascribed to those shares by Meta.”

“Such a higher valuation may affect the Spin-Off distribution amount and thus the U.S. federal income tax consequences of the Spin-Off to Meta’s Series A Preferred stockholders.”

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"

Muse9876Author

Hi, thanks for your reply. I understand your reply, but the information given to us is conflicting.

The answer I received directly from META pertaining this stated the the ascribed value of the shares that META comes up with is not binding to any tax authority (this is stated on the S1 as well) meaning their value could be higher or lower then what the IRS deems or can differ from what shareholders think the stock is worth on “estimating the fair market value”.

Page. 32

Gain or Loss on the Spin-Off Treated as a Sale or Exchange of Series A Preferred Stock

“If the Spin-Off qualifies as a sale of Series A Preferred Stock, such U.S. holder generally will recognize capital gain or loss in an amount equal to the difference between (i) the fair market value of our Common Stock received by such U.S. holder in the Spin-Off and (ii) such U.S. holder’s adjusted tax basis in the Series A Preferred Stock surrendered in the Spin-Off.

Any such capital gain or loss generally will be long-term capital gain or loss if a U.S. holder’s holding period for the Series A Preferred Stock so disposed of exceeds one (1) year. Long-term capital gains recognized by non-corporate U.S. holders generally will be eligible for taxation at reduced rates. The deductibility of capital losses is subject to limitations.“

ErnieS0

There are two classes of Meta Materials stock — common and preferred. From the Securities and Exchange Commission link you provided, Meta will value the common shares at a certain price, which the IRS may or may accept.

Holders of preferred shares will report the difference between the value of the common shares they receive in exchange for surrendering their preferred shares.

For example, if Meta says you receive common shares worth $100 in exchange for preferred shares that have a cost of $100, there is no gain or loss. If the IRS says, “No that’s wrong, the common shares are worth $150,” then you have a $50 gain ($150 - $100).

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"