JCI headache part 2: How to calculate cost basis / tax consequences of JCI -> ADNT spinoff?

Question

In addition to part 1, in which JCI and TYC merged, I am trying to figure out the tax consequences of JCI's spinoff of Adient (ADNT).

JCI spun off 0.1 share of ADNT for each share of "new" (post-Tyco merger) JCI stock owned. That part is the simple part... but how can I figure out the tax consequences of this spinoff and how to apportion cost basis between ADNT and JCI?

JCI published a dumbed-down PDF presentation that gives no information about tax consequences other than that it is a taxable event.

I found another website for an investor club that suggests that the way to handle this event is roughly as follows:

• Taxable dividend value of spinoff = (# of shares in new JCI) * 0.1 * $45.51 (allegedly the closing price of ADNT on first day of trading)
• Cost basis of ADNT owned would be # of ADNT shares owned * $45.51

so if I own 113 shares of new JCI, then I could calculate 113*0.1*$45.51 = $514.26, and then my cost basis of the 11 remaining ADNT shares as $500.61 (with $13.65 cash-in-lieu for the 0.3 shares)

Is this correct? If so, how can I verify (or correct) the $45.51? My brokerage shows that I received $13.13 cash-in-lieu for my 0.3 shares at a price of $43.77.

Answer 1

Your 1099-B report for ADNT on the fractional shares of cash should answer this question for you. The one I am looking at shows ADNT .8 shares were sold for $36.16 which would equal a sale price of $45.20 per share, and a cost basis of $37.27 for the .8 shares or $46.59 per share.

Answer 2

I am using the same logic as the two answers above. I got almost the same result ($46.60 instead of $46.59 per share) using the sold fractional share basis.

However, the JCI Qualified Dividend (on the 1099-DIV, not the 1099-B) divided by the number of shares spun off yields a basis per share of only $40.97 That compares to $45.349 in answer two above. It seems that we should get the approximately same basis per share using the same arithmetic, and I do not know why we don't. For my tax files, I plan to use the Adient basis equal to the dividend from the 2016 1099-DIV of JCI (the PLC after the merger). My reasoning is that I cannot use an amount for the Adient basis that is greater than the dividend I paid taxes on.

[In case this part of the question comes up again, you can get historical quotes at various websites such as https://finance.yahoo.com/quote, which does show $45.51 as the Adient closing price on 10/31/16.]

Answer 3

OK, I found this filing by JCI on the SEC website:

U.S. Federal Income Tax Consequences of the Distribution to U.S. Holders

For U.S. federal income tax purposes, the distribution will not be eligible for treatment as a tax-free distribution by Johnson Controls with respect to its stock. Accordingly, the distribution will be treated as a taxable distribution by Johnson Controls to each Johnson Controls shareholder in an amount equal to the fair market value of the Adient ordinary shares received by such shareholder (including any fractional shares deemed received and any Adient ordinary shares withheld on account of any Irish withholding taxes), determined as of the distribution date (such amount, the "Distribution Amount").

The Distribution Amount received by a U.S. holder will be treated as a taxable dividend to the extent of such U.S. holder's ratable share of current or accumulated earnings and profits of Johnson Controls for the taxable year of the distribution (as determined under U.S. federal income tax principles). Any portion of the Distribution Amount that is treated as a dividend will not be eligible for the dividends-received deduction allowed to corporations under the Code.

My broker's 1099-B form tells me that I received a Qualified Dividend from JCI on 10/31/2016 of $512.44, which would be equivalent to $45.349 valuation of ADNT as of the spinoff date for my 11.3 shares (before the 0.3 shares were sold as cash-in-lieu) .