Correcting Cost Basis FIFO and Spec Lot

[jnewton]

Mark:
I have a stock that has been through multiple spin-offs and roll-ups. I am trying to record a new spin-off. I noticed that the FIFO, Avg and Spec Lot Cost basis are different, with the FIFO and Avg Cost being negative. For our records these numbers should all be the same and match the Spec Lot Cost as that is our key tracking method. Moreover, when I go to record the spin-off, I get an error message that I can't record a spin-off with a negative cost basis. How can I adjust the FIFO and Avg Cost numbers to bring them in line? Thanks

[Mark]

Hi jnewton,

The tax cost basis comes from the cost of your purchases, so you can edit those if they are incorrect. The tax cost basis gets reduced when you have "Return of Capital" types of distributions, which are used in spin-offs to move tax basis to a spun-off child. So, check your purchases and see if you have any Return of Capital distributions recorded incorrectly.

[jnewton]

Mark:
Thanks for the quick response. The ROC seems to be the issue. I adjusted the ROC recently to bring it in line with our manual records, so I'm sure that's what's causing the problem. However, the cost of this stock in this particular portfolio has gotten out of line somewhere and needs to be corrected (the reason for the ROC adjustment). So I need to reverse my ROC entry. This will correct the current problem, but I'm back with a stock that disagrees with our manual (control) records. As I stated earlier, this stock has been through multiple spin-offs, roll-ups and partial roll-ups, and somewhere along the way an entry was made incorrectly. But the trail is so complex I can't find it. I know with some transactions the Tax Basis can be manually adjusted. Is there another way to override to bring the cost in line?

[Mark]

Hi jnewton,

If you just want to change the cost basis, you could record a "Return of Capital" distribution. You can make it negative if you want to increase your basis.

[jnewton]

Mark:
The problem is really this: The cost basis is different for all 3 types FIFO, AVG, and Spec Lot. These costs are different even though no shares have ever been sold only adjustments for Spin-offs or Roll-ups. I checked the related stocks and the basis in those stocks match up. So something got out of line in this particular stock. An ROC change is going to change all 3 costs by a like amount. If I reduce ROC to bring the Spec Lot to match our records, the FIFO and AVG Costs go negative. Is there a way to manually override and bring all three costs into line? Thanks

[Mark]

Hi jnewton,

Are you sure no shares have been sold or transferred out? If so, can you email me this investment file?

[jnewton]

Mark:
There were no shares sold, but there were shares that were transferred out to account for a spin-off. And that seems to be where the problem originates. For some reason in this particular account, the 3 cost basis are all different on the spin-out transactions even though the only previous transaction were purchases and a split. I'm sure this has to do with "learning curve issues" as this portfolio was imported from another program about 8 years ago when I was just starting to use FM. The transfer/spin-off entries occurred shortly afterward. I have found other cost basis that I messed up along this time and have been able to figure out how to correct them. But this particular stock is the most complex one I have.
So, to refine my question, is there a way to edit these old transactions to bring the 3 cost basis in line. Keep in mind they occurred in 2008.
I appreciate your help.
Thanks

[Mark]

Hi jnewton,

Yes, the transfer outs can make the different accounting methods have a different basis afterwards. This is because the cost basis transferred out can be different for each of the accounting methods. For example, consider the case where you bought 100 shares at $50/share, and then another 100 shares at $100/share. If you transfer out 100 shares, the transferred out basis using the AVG cost basis will be $75/share, but for FIFO it would be $50 share. Your remaining cost basis after the transfer out will be different between FIFO and AVG. Unless you only bought them once, it is unlikely you can edit the transactions to make all 3 accounting methods have the same remaining cost basis. Is there some reason you want all 3 accounting methods to have the same basis? If you just choose one method to use, then make sure you stick with that.

[jnewton]

Mark:
No the 3 methods don't have to be same. We use Spec Lot and don't really care about the other 2. However, as I stated earlier, the Spec Lot basis is out of balance from our manual records, when I do an ROC adjustment to bring the Spec Lot in line with our records, the other 2 go negative and won't let me record the transaction.
I may have to just note this particular stock is off and move on.
Jim

[jnewton]

Have to study the transactions more to try to see where I screwed up!
Thanks Mark, you've been very helpful.

[Mark]

Hi jnewton,

Just an FYI. If your tax basis is negative, you can't record a tax-free type spin-off, but you can still record a taxable spin-off. It sounds like you've been working with the tax-free option...

[jnewton]

Mark:
Yes, these are tax-free spin-offs.

Thanks Again
Jim