“Same Property Rule”
As a shareholder of an AT&T stock IRA, I’ve found myself in a real pickle. April 8, 2022 AT&T spun off a portion of my IRA stock to WBD. This was not a distribution I asked for, but I realize I must replace this distribution to my IRA within 60 days to avoid tax consequences. My son who also has an AT&T IRA is facing a 10 % penalty as well as tax consequences for being under 59 1/2. However, we were told by Computershare (the holding company) that this is to be a non-taxable event.
To date, we have not received a statement telling us the value amount taken from AT&T that was converted to WBD to know how much we must put back. We do know the WBD stock has gone down in value. Before reading a Slott alert about “The Same Property Rule”, we assumed we had to make up the value difference when converting the WBD stock back to AT&T?
Now, if I am understanding the “same property rule” correctly, as long as we transfer back the same number of shares to AT&T regardless of the value, we will satisfy the 60 day rollover requirement? The puzzle is that the number of AT&T shares never dropped. The way the spin off worked, the number of AT&T shares never went down, but a percentage of the value was converted to WBD. How do you replace shares that were never reduced?
If we must replace value, this could wind up to be quite costly since the WBD stock has dropped by more than $4 a share. If the holding company keeps 20% of the sale of the WBD shares for taxes, when the check arrives from the sale of the WBD shares we won’t have the available funds to make up the difference to put back into AT&T.
I am still quite confused, and am terribly afraid of making a mistake.
Any advice would be greatly appreciated.
As I see it AT&T should never have spun this stock without direction from its shareholders prior to the event, so that an even exchange rollover could have happened immediately on the day of spin. Lawsuit?
Permalink Submitted by Dan Zaehring on Tue, 2022-04-26 23:45
Spin-off of IRA Assets should simply remain IRA assets. If so, the WBD should still be in the IRA. Even if the ATT IRA restricts ownership to its stock, the custodian should then be required to establish a new IRA with the distributed WBD as a simple transfer–not a taxable distribution nor requiring a roll-over.
Permalink Submitted by Alan - IRA critic on Wed, 2022-04-27 00:10
I agree. This was a special dividend, and there should have been no distribution from the IRA, therefore no taxable event or need for a rollover. What is an ATT IRA? ATT is not an IRA custodian, so I assume you are referring to an IRA account that holds ATT as an investment, and now probably holds the same number of ATT shares, but worth less due to the spinoff, and the IRA likely also holds the WBD shares. There is nothing you need to do unless you do not want to hold one or both of these securities in your IRA any longer. If so, you can sell them with no taxable event and reinvest in something else.
This recalls the baby bell breakup of 1984 in which 7 regional phone companies were spun off and everyone ended up with all these holdings, mostly in taxable accounts and they had to track the cost basis of each. Then they continued to merge and cost basis became a massive can of worms. But in an IRA you do not have to worry about tracking cost basis. Just be concerned with the value of the investment.