Stock Spinoffs and Mergers — How to Fix Cost Basis on Your 1099-B

You held one stock, and then a corporate action happened — a spinoff carved out a new company, or a merger swapped your shares for something else. Now you've sold, and your 1099-B is reporting a cost basis that's obviously wrong: too high, too low, or flat-out zero on shares you've owned for years. Welcome to one of the messiest corners of investment tax reporting.

Corporate actions like spinoffs and mergers reallocate your cost basis, and brokers frequently get the math wrong or drop it entirely — especially when shares transferred between brokers or the event was complex. The good news is that the companies involved are legally required to publish exactly how basis should be split, on a document called Form 8937, and once you have those numbers the fix on Form 8949 is mechanical. This guide walks through spinoffs, mergers, and the fractional-share cash-outs that trip everyone up.

Why Corporate Actions Break Your Cost Basis

Your cost basis doesn't disappear in a spinoff or tax-free merger — it gets divided or carried over. But brokers only reliably track basis for "covered" shares they held continuously, and corporate actions create exactly the conditions where tracking fails:

• Shares get re-issued under a new ticker, and the system may reset basis to zero.
• Basis has to be allocated by a percentage the broker didn't apply.
• Shares that transferred in from another broker arrive as noncovered with no basis at all.

The result is a 1099-B that reports the right proceeds but the wrong basis. As with any noncovered security missing its cost basis, you're allowed and expected to correct it yourself on Form 8949.

Spinoffs: Allocating Basis Between Parent and Child

In a spinoff, a company hands you shares of a newly independent business — think AT&T spinning off Warner Bros. Discovery, or GE spinning off its healthcare and energy arms. A typical spinoff is tax-free at the time it happens: you don't owe tax on receiving the new shares. Instead, your original cost basis gets split between the parent and the spun-off company based on their relative fair market values right after the spinoff.

Here's the process:

1. Find the company's Form 8937. Every public company that does a spinoff must publish "Form 8937 — Report of Organizational Actions Affecting Basis," usually in the investor-relations section of its website. It states the allocation percentages.
2. Split your original basis using those percentages. If your basis was $10,000 and the allocation is 82% parent / 18% spinoff, your parent basis becomes $8,200 and your spinoff basis $1,800.
3. Keep the original holding period for both. The spun-off shares inherit the parent's acquisition date, so a long-held position stays long-term.

When you sell either the parent or the spun-off shares, use the allocated basis — not the broker's zero — on Form 8949.

Mergers: It Depends on What You Received

Mergers vary wildly in tax treatment based on what you got in exchange:

• All-stock (tax-free reorganization): Your basis carries over to the new shares. No gain or loss until you sell. The new shares keep your old acquisition date.
• All-cash buyout: This is a taxable sale. You have a gain or loss equal to cash received minus your original basis, reported normally on Form 8949.
• Cash-and-stock ("boot"): Partially taxable. You recognize gain up to the cash portion, and your basis in the new stock adjusts. This is the trickiest case — the acquirer's Form 8937 will spell out the basis calculation.

The critical move in every merger is the same: pull the acquirer's Form 8937 to see how basis carries or adjusts, rather than trusting whatever the broker plugged in.

The Fractional-Share Cash-in-Lieu Trap

Spinoffs and mergers rarely produce whole shares. If your allocation works out to 12.4 shares, you get 12 shares plus cash in lieu of the 0.4 fractional share. That cash payment is a tiny taxable sale — and it shows up on your 1099-B, often with zero basis, generating a phantom gain.

To fix it: allocate a sliver of your basis to the fractional share (0.4 shares' worth) and report the cash-in-lieu sale on Form 8949 with that basis. The gain is usually a few dollars, but leaving it at zero basis overstates it and, worse, leaving the sale off your return entirely can trigger an IRS matching notice for an unreported sale.

Reporting It All on Form 8949

Once you have the allocated or carried-over basis:

1. Report each sale on Form 8949, using the correct short-term or long-term section based on the original acquisition date (which carries through the corporate action).
2. Enter proceeds from the 1099-B in column d.
3. Enter your corrected basis in column e.
4. If the broker reported an incorrect basis to the IRS, enter adjustment code B in column f and the correction in column g. If basis was blank (noncovered), just enter the right number in column e.

Our Form 8949 adjustment codes reference shows exactly when code B applies versus a clean column-e correction.

FAQ

How do I find the cost basis after a spinoff?

Split your original basis between the parent and spun-off shares using the allocation percentages on the company's Form 8937, published on its investor-relations site. The spun-off shares keep the parent's original acquisition date.

Is a spinoff taxable?

A standard tax-free spinoff is not taxable when you receive the shares — you only allocate basis. You pay tax when you eventually sell. Cash received in lieu of fractional shares is a small taxable sale.

What is Form 8937?

"Report of Organizational Actions Affecting Basis" — a document public companies must publish after spinoffs, mergers, and similar events, stating how shareholders should allocate or adjust their cost basis.

My broker shows zero basis after a merger. Is that right?

Usually not. In a tax-free all-stock merger your basis carries over; in a cash deal it's your original basis. Pull the acquirer's Form 8937 and correct the number on Form 8949.

Why did I get a small taxable sale I didn't make?

That's almost certainly cash in lieu of a fractional share from a spinoff or merger. Allocate a bit of basis to it and report it — don't leave it off, or the IRS may flag an unreported sale.

Does the holding period reset after a corporate action?

No. In tax-free spinoffs and reorganizations, the new shares inherit the original acquisition date, so long-held positions stay long-term.

Bottom Line

Spinoffs and mergers don't erase your cost basis — they reallocate it, and brokers routinely botch the math or drop it to zero. The companies involved hand you the exact answer on Form 8937; your job is to apply the allocation percentages (spinoff) or carryover rules (merger), catch the fractional-share cash-in-lieu, and correct the numbers on Form 8949.

Get the allocation right and a sale that looked like a huge gain usually snaps back to reality — often with years of long-term holding intact.

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Corporate actions turned one position into a dozen lots? Convert your 1099-B free — we extract every transaction with proceeds and holding periods preserved, so you can apply your Form 8937 allocations and build a clean Form 8949 without untangling the whole statement by hand.