| Telmex Internacional spinoff by Telefonos de Mexico |
On June 11, 2008, Telefonos de Mexico,
commonly called Telmex, completed a
corporate reorganization or "split-up" in
which one share of Telmex Internacional
ADR (stock symbol TII) was issued for each
share of Telefonos de Mexico (stock
symbol TMX).
What is the cost basis that you should
allocate to your new TII shares?
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An excerpt from the 12/7/07 SEC filing states:
"U.S. holders should not recognize any income, gain or loss for U.S. federal income tax purposes in connection with the Spin-off and a U.S. holder’s aggregate basis in the Telmex shares (or Telmex ADSs) and Telmex Internacional shares (or Telmex Internacional ADSs) after the Spin-off would equal such U.S. holder’s former basis in the Telmex shares (or Telmex ADSs) prior to the Spin-off. Such aggregate basis would be allocated among the Telmex shares (or Telmex ADSs) and the Telmex Internacional shares (or Telmex Internacional ADSs) in proportion to their respective fair market values."
What does this mean?
In simpler English, it means that you look at the market price of each stock on the first day of trading after the spinoff and allocate your existing cost basis of TMX in proportion to the relative market values of TMX and TII. The trading ranges of the market prices per share on the first day of separate "regular way" trading (June 11, 2008) were as follows:
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Ticker
Symbol
|
Low
Price
|
High
Price
|
Average
Price
|
Spinoff
Ratio
|
Market
Value
|
Relative
Proportion
|
| TII |
$16.28 |
$17.53 |
$16.905 |
1.0 |
$16.905 |
40.574% |
| TMX |
23.87 |
25.65 |
24.760 |
1.0 |
24.760 |
59.426 |
| Totals |
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|
|
|
$41.665 |
100.000% |
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Therefore, you should allocate 40.574% of your original cost basis in Telmex (TMX) to your new shares of Telmex Internacional ADR (TII). Your new basis for Telmex (TMX) becomes 59.426% of your original cost basis in TMX. Note that no adjustment is required for the stock distribution ratio because it was a one-for-one distribution.
Alternatively, the opening or closing prices can also be used to develop the market value ratios. You can even use the volume-weighted average trading price. All of these methods are equally acceptable to the IRS.
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Use our handy spinoff calculator to compute your new cost basis and the gain or loss on any "cash in lieu" of fractional shares payment. Just click on the image of the spinner to the right and then select "Telmex Internacional ADR" from the drop-down menu. Many fields will be pre-filled for you. Simply add your own cost basis information for Telefonos de Mexico.
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| Spinoff Calculator |
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