Error on cost basis with return of capital

[Bobo]

I found a bug on how cost basis is adjusted when receiving a "return of capital" distribution. Assume ownership of 2000 shares of ABC. 1000 shares are sold on 10/05/2018. A "return of capital" distribution is received on 10/15/2018. So when entering this distribution on the distribution transaction window I would on the "Date Received" field enter 10/15/2018 and on the "For Shares Owned" field I would enter 10/4/2018, as the return of capital is for all 2000 shares. So the distribution should change the cost basis for all 2000 shares. But FM changes the cost basis only on the remaining 1000 shares owned. In order to correctly get the return of capital distribution to change the cost basis for all 2000 shares I have to change the "Date Received" field back to 10/4/2018, unfortunately that is not the date I actually received the distribution, so that is not good solution to the problem.

[Mark]

Hi Bobo,

Yes, it does work the way your are describing. It reduces the cost of the shares owned on the date the Return of Capital was received. We can look into changing this to be the date entered "For Shares Owned On".

[Bobo]

Its been a while since my posting. So I was wondering if this problem with return of capital distribution is on the "to do list" to be fixed? It seems to me a return of capital distribution should work the same way as a dividend distribution.

[Mark]

Hi Bobo,

Sorry, nothing has changed here. I understand your point about the reduction in cost basis being applied as of the "For shares owned on" date, instead of the date received. I didn't follow how it doesn't work the same as a dividend? Dividend type distributions do not affect the tax cost basis.

[Bobo]

<I didn't follow how it doesn't work the same as a dividend?>

I use "For shares owned on" on a dividend to apply that dividend to the shares that produced it, which works great. So I'm thinking "For shares owned on" should also work for return of capital by applying the effects of the return of capital (ie. reduce cost basis) on the shares that produced it. Hope that makes sense. Anyways, we both understand the problem, I was just wondering when/if it was going to ever be fixed. I have entered countless distributions into FM using the date I received the distribution. But for one return of capital distribution getting the distribution applied to the correct shares means I have to back date the distribution, which is not consistent with all the other distributions I have ever entered, aagh!

[Mark]

Hi Bobo,

Understood. This is on our list of items to improve.

[Bobo]

I'm glad to see the rounding error on yields will be fixed on the next update, which I assume is the next update to FM 2018. So I'm here to state my case on why this error on cost basis with return of capital should also be fixed on the next update.

The code is running as expected, but this isn't a coding bug, its a software "design" bug on the user interface. When I select "Return of Capital" for the Distribution Type the "For Shares Owned" box should be grayed out or disappear, because it doesn't work for Return of Capital distributions. The reduce cost basis is not applied to the For Shares Owned. Now I'm not suggesting to fix the bug by making the For Shares Owned box disappear when Return of Capital is selected. But to fix the bug so the For Shares Owned works with Return of Capital.

The code is running as expected when calculating yields. The rounding error bug was introduced when the user interface was changed to display 3 decimal places. The rounding error is a bug and this Return of Capital is a bug, and thus both should be fixed on FM 2018.

[Bobo]

I was wondering if this "Return of Capital" distribution is now using "For Shares Owned On" to correctly apply the return of capital to the correct shares? I didn't see it in the new FM 2022 revision history.

[Mark]

Hi Bobo,

Sorry, no, this did not make it into FM 2022.

[Bobo]

Given that its been 4 years since my original post, can I assume "Return of Capital" will never work with "For Shares Owned"?

[Mark]

Hi Bobo,

I wouldn't assume that, but I also can't tell you if/when it will be changed.