Do I Need to Report the Motorola Spinoff on My Taxes?

I have been a long time holder of Motorola stock. In 2011, there were two significant events that are related to Motorola: 1) At the beginning of 2011, Motorola Incorporated was split into two companies: Motorola Solutions (NYSE: MSI) and Motorola Mobility (NYSE: MMI). The old stock symbol MOT was retired at that time. 2) In August 2011, Google Inc. announced that it plans to acquire Motorola Mobility (MMI) for $40 per share in cash. This transaction is expected to close in early 2012.

If you owned shares of Motorola in 2011, this post will try to explain what you have to report on your taxes. Let's start with the spin off. The Motorola spin off was a bit more complicated than the usual spinoff. First, holders of the old Motorola Stock (MOT) were given 1 share of Motorola Mobility (MMI) for every 8 shares of MOT that they owned. Then, the remaining MOT shares underwent a 1-for-7 reverse split and the remaining entity was renamed Motorola Solutions (MSI). If this sound confusing, I have written a post that describes the Motorola Spinoff.

I've seen that people often do web searches using terms like "Motorola cost basis" or "Motorola spinoff". Unfortunately, you won't be able to find your cost basis in this way as everybody's situation is different. Your own cost basis has to be calculated for your personal situation.

In most cases, you will end up with fractional shares of either MSI or MMI after the spinoff. (The only exception is if the number of original MOT shares you owned was a multiple of 56 shares.) In the case of fractional shares, there is also a small portion of the cost basis that may be paid out as "cash in lieu" (CIL) of fractional shares. For cash-in-lieu, this distribution may or may not be reported by your broker on a 1099-B form.

Motorola investor relations has a webpage with additional information about the spinoff. It is located here: http://investors.motorolasolutions.com/separation.cfm

My brokers, TD Ameritrade and Morgan Stanley Smith Barney, calculated the cost basis for me. In both cases, there was a slight difference between what my the basis would be if I calculated using the method above. My suggestion is that if your broker already calculated the the basis for you, you should go with that number unless you believe that they made a mistake in the process.

As for whether the cash-in-lieu (CIL) distribution is taxable, in general CIL received for fractional shares of stock is a taxable event. However last year, after Verizon spun off Frontier, I received 6 cents in CIL that was not reported. A broker is not required to report a CIL distribution unless it is for $20 or more. Specifically, I got this message from my broker: "A cash-in-lieu payment is reported on Form 1099-B if the payment exceeds $20. If your payment was less than $20, it is not reportable."

As for the Google acquisition of Motorola Mobility (MMI), this deal has not yet closed. So unless you sold MMI in 2011 there is nothing additional to report beyond the possible cash in lieu.

Disclaimer: This article is provided for illustrative purposes only. PF Stock does not provide tax advice, and I encourages readers to consult with a tax adviser if they have specific questions about tax reporting.

PFS