base on Repository containing financial spreadsheets Welcome, fellow members of the Turtle Pond. This repo holds spreadsheets, research, and conclusions for the financials around the VMW->AVGO acquisition. I'm not a CPA and this is a personal best effort, so do your own diligence - I'll try to provide citations and links to make that easy. Click on the burger menu on the top right of the readme pane for a table of contents and the usage doc for detailed instructions. By insistent recommendation of colleagues/friends that _they_ want to be able to pay something, I haved enabled Sponsor for the repo ([:heart:](https://github.com/sponsors/hickeng)). Don't feel obligated - my goal is to provide support to colleagues and friends in getting through an unexpectedly complex tax season... and to get peer reviewed in turn to improve _my_ filing correctness! So, mostly standard Open Source motive. I've not found a CPA willing to engage in a structured validation of calculations and approach prior to the April filing deadline. I have found some willing to engage after that, but at this point (end of March) I don't think it's feasible to expect formal validation prior to April filing. Personally I'll be filing an extension using the sheet numbers and engaging a CPA after their crunch season is finished and they've more time for the more complex stuff. The repo was created not just to hold the spreadsheet, but to hold reference material and as an audit trail, so it'll be around after April but updates will be less frequent and will be primarily around logging formal answers as they come. I'm tracking [questions needing professional expertise](https://github.com/hickeng/financial/issues?q=is%3Aopen+is%3Aissue+label%3Acpa). I'll try to keep those issues curated such that the description is sufficiently clear and coherent to be passed directly to a CPA, but it'll be best effort. If there's questions you want answered that aren't addressed in the README and in that labelled set, please open an issue with the `cpa` label. Use by past and present VMware and Broadcom employees for tax purposes, including giving it to a CPA for use with your personal holding, is acceptable under the non-commercial license. Use by other individuals for personal tax purposes without CPA involvement is also acceptable. For broader use than that, contact me for commercial licensing. # Getting Started This section is a quick reference for gathering critical data and what a CPA needs to be able to calculate basis information and gain/loss/tax, and a high level description of how to use the spreadsheet to generate numbers for filing. The repo focuses on the US tax impact of the merger - if that's not relevant to you then this will be of only academic interest. Expand the following sections for more detailed info. There is a Getting Started section in the [discussions forum](https://github.com/hickeng/financial/discussions) for questions. <details><summary>1. Collect necessary inputs</summary><p> All of this information _should_ be in eTrade (see Known Problems if any is unavailable). Log into your eTrade account and follow the steps [here](usage.md). The instruction links below jump to specific steps. If you're logged into eTrade, the links provided deeplink into the appropriate eTrade pages where possible. By the end of it you should have: * ESPP Purchase Confirmations (PDFs) - [instructions](usage.md#etrade-stock-plan-confirmations) * RSU Release Confirmations (PDFs) - [instructions](usage.md#etrade-stock-plan-confirmations) (same as above) * Transaction log from 2023-11-21 to some time later, but at least after 2023-11-28 (screenshot or csv) - [instructions](usage.md#etrade-transaction-log) * Stock Plan Benefit History spreadsheet (xlsx) - [instructions](usage.md#etrade-benefit-history-spreadsheet) * eTrade 1099-B (PDF) - [instructions](usage.md#etrade-1099-b--supplement) * eTrade Supplement (PDF) - [instructions](usage.md#etrade-1099-b--supplement) (same as above) </p></details> <p/> <details><summary>2. Create a bundle for a CPA</summary><p> Your CPA needs all of the information collected in the prior section, along with all the following if the conditions apply: * If you held VMware shares over the Broadcom merger * [Form 8937](documents/Broadcom%20-%20Form%208937%20Acquistion%20of%20VMware%20Inc..pdf) for the merger * If you held VMware shares since before 2021-10-29 (the most recent Dell dividend) * [Form 8937](documents/Form%208937%20-%20October%2029,%202021.pdf) for the 2nd Dell distribution (the version with the value eTrade used) * If you held VMware shares acquired via owning Dell shares during the 2021 Dell dividend * [Form 8937](documents/IRS%20Form%208937%20-%20VMWARE,%20INC.%20November%201,%202021%20Recapitalization.pdf) for the Dell recapitalization * If you held VMware shares since before 2018-12-27 (the first Dell dividend) * [Form 8937](documents/IRS%20Form%208937%20-%20VMWARE,%20INC.%20December%2028,%202018%20Distribution.pdf) for the 1st Dell distribution If you needed to give your CPA any of the Dell distribution/recapitalization forms, let them know that the eTrade Supplement does not include the necessary basis adjustment. Also let them know that you're uncertain whether "imputed ordinary income from the ESPP bargain element" will be correctly reported via W2. The above information is everything necessary to completely recreate what the sheet does but, for utility, if you're a past/present VMware/Broadcom employee the non-commercial license allows for giving it to a CPA for use with your personal filing. If you don't want to give your CPA the entire sheet, you could give them the values from the three Form8949 sections (section in Summary for fraction, and sections for ESPPs and RSUs). Collate the Form8949 fragments from the sheet as documented [in the usage](usage.md#form-8949). </p></details> <p/> <details><summary>3. Enter your collected data into the spreadsheet</summary><p> There is a shared version of the spreadsheet on Google Sheets. Go [here](https://docs.google.com/spreadsheets/d/1aQmg_Bdh5f00mJ0ag-GNZVXL9UIJjujOwpsP2h58ZFE/edit?usp=sharing), select `File->Make a copy`, then you can start entering data. If you want to use Excel instead of Google Sheets, or the binaries from the repo, see [Install](install.md). This entails: 1. entering number of VMW shares held through the merger for: 1. RSUs - enter `Release Date` and `Shares Issued` values per vest. 1. ESPP - enter `Grant Date`, `Purchase Date`, and `Shares Purchased` per period. 1. details from eTrade transaction log - [instructions](usage.md#etrade-transaction-log) 1. Shares (exchange for cash) 1. Shares (tender payment) and that's it. For completeness you should [figure out](usage.md#factional-share) which lot your fractional AVGO share came from and check the appropriate tickbox, but omitting this will have only a minor effect on things if you've any significant number of shares. You _should_ do this if using the sheet for filing, but if using it for estimation, exploration, double-checking CPA figures, etc then it's non-critical. Optionally you can [add validation inputs](usage.md#etrade-transaction-log) used to sanity check against transcription errors, and W2/1040 information to inform a ballpark tax estimate. Optionally you can [add other sources of income](usage.md#other-income) to improve the tax estimation. Optionally you can record related information that's not used for calculation such as shares withheld for tax (RSUs), contribution amounts and carry overs (ESPP), and the numbers of AVGO shares eTrade associated with each lot. If you sold AVGO shares post-merger but in 2023, you can use the [post merger sale of AVGO](usage.md#post-merger-sale-of-avgo) tweak to set the price at which you sold and generate the necessary basis and imputed income (ESPP) for filing. Very, very optionally there is [a tweaks section](usage.md#tweaks-and-custom-functions) that you can play with to change the way the sheet works. This goes from minor things like chosing which Broadcom Fair Market Value to use (both Mean and Close seem to be confidently permitted) to major items like changing the per-lot ratios for cash/shares (note [#13](https://github.com/hickeng/financial/issues/13) if playing with this). The sheet is still being actively refined and, while it's slowed, people are still finding issues to be fixed. The [timeline](https://github.com/users/hickeng/projects/2/views/2) has a stable version that's as vetted as viable towards the end of March. I'll be tagging a v1.0.0 that I will use for filing my extension in April. </p></details> <p/> <details><summary>4. Look at the outputs from the sheet</summary><p> The primary outputs from the sheet are: Critical: 1. Per-lot tax basis and gain data needed for Form 8949 to be filed with your tax return. Used to either populate a Form 8949 directly, or to correct 1099-B imports. Information relevant to _now_, such as this data, is tinted in pale blue. 1. Per-lot tax basis, needed when selling AVGO shares post-acquisition. Information related to post-acquisition sale of shares is tinted in pale green. Informational: 1. Long and short term capital gains for 2023 and potential future values 1. Ballpark tax liability estimate for Federal and California for making estimated payments </p></details> <p/> <details><summary>5. Make Estimated payments if you've not reached Safe Harbor thresholds</summary><p> Taxes are due for the 4th quarter [on January 15th of the next year](https://www.irs.gov/faqs/estimated-tax/individuals/individuals-2) if making estimated payments (worst case deadline for most people)... so 2024-01-15 was the deadline for paying any estimated taxes resulting from the merger. If you've _not_ met safe harbor thresholds, and given all the income came in the last quarter of 2023, look at reducing penalty and interest amounts when filing by using the Annualized Income Installment method. </p></details> <p/> <details><summary>6. Adjust 1099-B in TurboTax (or similar)</summary><p> There's step-by-step instructions [here](usage.md#entry-into-turbotax). </p></details> <p/> ---- If you need some fast context for what's being done, a very quick summary is as follows (assuming you opted for 100% stock): * you received, per share of VMW, approximately $196.86 true economic compensation: * $68.2575 cash * 0.131292 shares of AVGO (value of $128.60 at time of merger) * you now need to know * how much tax to pay on the cash * what the tax basis is of the AVGO for when you sell it <details><summary>Example with numbers</summary><p> Assume you have `100` shares of VMW going into the merger at a cost of `$90` each. This results in: * `$19,686.00 compensation with a basis of `$9,000` * `$6825.72` in cash * `13.1292` AVGO shares You paid `$9000` to get `$19686`, so you've got `$10,686.00` of gain to pay tax on. How much of that gain you need to pay tax on as an immediate consequence of the merger is dictated by IRS Form 8937. For many shares the mandated gain calculation in Form8937 will requires you consider _all_ of the cash as gain (one of two possible paths), meaning: 1. you owe tax on `$6825.72`, reported by providing a cost basis of `$0.00` for the cash 4. the `$3859.80` of gain in AVGO shares is deferred to the future. </p></details> <p/> There's a [more in-depth but still quick overview](https://docs.google.com/document/d/1cN5gP5Qb-A0NbvOI2dj6gwk1ebpQbRzgnbmJ_N6waZs/edit?usp=sharing) of how VMW shares convert to AVGO+cash, provided by Dan Kan. You don't need to know this, but if you want to understand the basics behind the numbers the sheet generates, this is a good starting point. ----- ## Known Tax Problems After Merger <details><summary>Details</summary><p> The problems we as VMW holders know of are collected [here](problems.md), along with groups impacted, and impact assment. All are works in progress. This primarily focuses on issues impacting US persons: * $0 cost basis and incorrect adjustment in eTrade Supplement * the cascade consequences of this single issue account for the bulk of this repo * incorrect code ‘N’ in Form 8949 generated by TurboTax * treatment of proceeds as dividends * substantially impacting non-US residents * fractional share sold at incorrect price * missing stock confirmations in eTrade * missing lot information on eTrade 1099-B * estimated value was used from draft f8937 for 2021 return of capital * some ESPP lots are showing up on 1099 as Noncovered Securities * ... if you know of others, please open an issue or pull request </p></details> <p/> ----- # Release Status Using github project for planning - see [Timeline](https://github.com/users/hickeng/projects/2/views/2) ## [v0.1.8](https://github.com/hickeng/financial/releases/tag/v0.1.8) - 2024-04-07 Minor updates and polish * Dates now render in the style of `2021-Jan-31` to be utterly unambiguous under review - can still be entered in ISO format * Default Form8949 display to be Cash Only instead of the prior combined cash and shares value * Added a per-lot post-merger tax basis column in addition to the per-share basis, in support of reporting 2023 post-merger sales * Support scenario where an ESPP lot is assigned to 100% cash - now includes the imputed income into the merger basis calculation * Add summary cell for post-merger average tax basis - this is needed for some non-US tax reporting * Added additional in-sheet doc notes for columns * Calculation and error handling changes - for neatness and unreachable edge case correctness, no impact on user values <details><summary>Previous Releases</summary><p> ## [v0.1.7](https://github.com/hickeng/financial/releases/tag/v0.1.7) - 2024-03-21 Major changes to entry of data into RSU and ESPP, and allows configuration of Form 8949 value style: * price data is now retrieved based on data from a reference sheet * no need to insert rows for RSU or ESPP datasheets - all ranges reference the entire column below the headings. * Form8949 Proceeds, Basis, and Adjustment can be switched between the two styles (`cash & stock` vs `cash only`) using a Tweak. See [the doc](usage.md#display-of-form-8949). * Adds additional documentation for [Form 8949](usage.md#form-8949) and [fractional shares](usage.md#factional-share). ## [v0.1.6-b](https://github.com/hickeng/financial/releases/tag/v0.1.6) - 2024-03-15 In place patch to the v0.1.6 release to address two row skews resulting from transcription errors when doing the comprehensible formula work. I've added a v0.1.6-b version of the binary sheets to the release assets that includes a hotfix for a formula that incorrectly skews across rows. The columns impacted were ESPP qualified status, and RSU post-merger short term gain. The old binaries to avoid mistaken use. Shared sheets had fix made in place and a comment added to cell ESPP!BA7 and RSU!AV7 noting that the cell has changed vs the repo tag. ## [v0.1.6](https://github.com/hickeng/financial/releases/tag/v0.1.6) - 2024-03-13 Updates to ESPP post-merger basis and Form8949 columns for RSUs, and polish: * Corrects the Form 8949 for RSUs to use (e) instead of (g) for the basis * Completes the ESPP ordinary income calculation for post-merger basis adjustment * Splits the ESPP post-merger basis into two columns, pure for use in tracking systems such as broker backends, or with imputed income adjustment for use on sale. * Updates the sheet formula to be more comprehensible through liberal use of LET and variable names * Additional documentation expansion including addition of two new [known problems](#known-tax-problems-after-merger) people are hitting * Includes an Excel compatible sheet version, albeit without strategy logic * Binary attached to [the release](https://github.com/hickeng/financial/releases/tag/v0.1.6) and shared sheet linked ## [v0.1.5](https://github.com/hickeng/financial/releases/tag/v0.1.5) - 2024-03-11 Substantial revision and update to documentation and allows selection of eTrade tax strategy for per-lot use, including: * Getting Started section * Examples for entering RSU & ESPP * Step-by-step for adding new rows to RSU & ESPP * Step-by-step for correcting Turbotax Proceeds and Basis for imported 1099-Bs * In-sheet checklist for tracking progress through completion * Various updates to in-sheet notes Updates: * Updated Dell 2021 Return of Capital number to match eTrade's use in 2021 and added draft Form8937 noting that estimated value * Added effective rate calculation to estimate * Added general mechanism for applying eTrade tax strategy from Account Settings if using per-lot approach * Definitive answer that the merger is not a disposition so doesn't incur imputed income from ESPP bargin element Includes bug fixes: * Fractional share now correctly included in potential capital gain * Other LTG was not being included in tax estimate * Corrected ESPP basis calculation to use only grant date as per [this comment](https://github.com/hickeng/financial/issues/15#issuecomment-1975816154) ## [v0.1.4](https://github.com/hickeng/financial/releases/tag/v0.1.4) - 2024-02-28 Gets the basics of Form8949 / cost-basis entry for TurboTax in place, adding Form 8949 sections in Summary and RSU/ESPP datasheets. Additionally: * fixed up Turbotax 1099-B import using the sheet Form8949 as test. * various column renames for consistency, precision, and clarity. * added Close value for AVGO FMV and noted where it's stated it's acceptable (costbasis.com) * added ratio option for "pure" ratio from eTrade transaction log to see where that value has been used by eTrade. * add section for import of 1099-B values - currently an unused placeholder for pending import ## [v0.1.3](https://github.com/hickeng/financial/releases/tag/v0.1.3) - 2024-02-28 Fixes use of hardcoded test values in the per-lot optimizer logic which would have meant almost no-one trying it would have got a valid final ratio of stocks/cash. ## [v0.1.2](https://github.com/hickeng/financial/releases/tag/v0.1.2) - 2024-02-22 Refines the per-lot treatment option and adds an input for a "date of sale" for post-merger AVGO to assess changes from Short Term Gains to Long (RSU), and from disqualified to qualified (ESPP) as the lots age. If you put in a date prior to 2024 then it'll roll the gains from AVGO sale into the tax estimate... but remember that's a very naive estimate and check the logic in the sheet both works for your case and is sufficient for purpose. The Tweak is found as a dropdown below the Fractional Share Values and contains dates of interest: * last year - this let's you see a tax estimation * today - calculate with todays date for LTG/STG and qualified/disqualified * a series of dates on which RSUs transition from STG to LTG On the same row there is a share price, set to AVGO live by default that you can overwrite with any postive value. ## [v0.1.1](https://github.com/hickeng/financial/releases/tag/v0.1.1) - 2024-02-20 Adds per-lot treatment mechanism in the RSU and ESPP datasheets: * select preference per-lot for `cash` or `shares` * run the optimizer to automatically adjust lot preference for maximum deferred tax (see steps below) ## [v0.1.0](https://github.com/hickeng/financial/releases/tag/v0.1.0) - 2024-02-18 Initial tagged release because the foundation is there: * human readable diffs are sufficient for reviewing changes before commit * basic inputs are complete - minimal input data needed and easily sourced from downloadable confirmation docs * basic outputs are complete - per-lot cash amounts, gain, old adjusted vmw basis, and new avgo basis are calculated considering short/long term gain and ESPP qualified/disqualified status * all planned changes are enhancements </p></details> <p/> # Contents The primary functional content of the repo is a spreadsheet, [shared in Google Sheets](https://docs.google.com/spreadsheets/d/1aQmg_Bdh5f00mJ0ag-GNZVXL9UIJjujOwpsP2h58ZFE/edit?usp=sharing), for calculating: * taxes due as a consequence of the merger * tax basis for AVGO shares received from the merger The [spreadsheet in the repo](https://github.com/hickeng/financial/raw/main/VMW_to_AVGO_ESPP_and_RSU.xlsx) is exported from Google Sheets. It can be re-imported into Google Sheets but some minor fix up is required, see [here](install.md). It cannot be imported into Excel without issues - since v0.1.6 there is an Excel version of the sheet attached to the releases that can be used, along with an Office365 shared version. Additionally there are various documents for reference. These are material that was used to construct the sheet or are directly related to its use. These are included for easy reference and to help in understanding what the sheet does, but are not prerequisites for _using_ the sheet: * [IRS Form 8949](https://www.irs.gov/pub/irs-pdf/f8949.pdf) - this is what we need to file with taxes. See [here](usage.md#form-8949) for documentation about generating the values to enter into this form. Additionally, the IRS form [instructions](documents/f8949%20-%20instructions.pdf). * various Form 8937 - these forms exist for the Dell distributions in 2018 and 2021, and for the merger. They detail the tax implications for shares held over those dates. * [Broadcom/VMware merger agreement](documents/VMware%20Broadcom%20Merger%20Agreement.html) * A [press release](documents/Broadcom%20and%20VMware%20Provide%20Update%20on%20Pending%20Transaction-%202012-10-30.pdf) and [Form 8-K](documents/Broadcom%20-%20Form%208-K.pdf) that combined are the best reference I currently have for the proration ratio of the overall deal. * A [2017 article](documents/Code_Sec_356_and_358_Regulations.pdf) from `The M&A Tax Report` - describes the concepts behind how share basis works through Section 356 mergers, along with commentary on a trial relating to such a merger. ## On "Upgrades" Prior to `v0.1.7` it was necessary to jump through hoops to insert rows in the RSU and ESPP sheets. With contribution from Eric Gray (a VLOOKUP prototype) and [market price data](https://github.com/wligithub/tax-tool/blob/93c2b2c2461f0e4b08cfec8098bd33c4c38d6228/data/vmw-historical-price.csv) from @wligithub this friction has been resolved. Upgrade between sheets should now be a matter of simple copy/paste of entered data, consisting of Dates, Share quantities, a checkbox for a fractional lot, and the Inputs on the Summary sheet. # On use of Issues I'm opening issues to track questions and feature requests. Feel free to do the same. If it's also applicable to me, I'll get to them (no latency guarantees). If not it'll be best effort. # References <details><summary>Form 8949 (to be filed with taxes) and basis calculcation pseudocode</summary><p> This is the form used to report "Sales and Other Dispositions of Captial Assets". It's split into Short Term and Long Term gain sections, with a radio button (well, checkbox but radio button is the required behaviour) to record how it intersects with the 1099-B. If you need to use multiple radio buttons, then you must submit additional instances of the form. There are more specific details on Form8949 and a walkthrough of how to use the generated values to adjust an imported 1099-B in TurboTax [in the usage doc](usage.md#form-8949). [Form 8949](documents/f8949.pdf) - ([instructions](documents/f8949%20-%20instructions.pdf))  Many people received a 1099-B from eTrade with the individual lots broken out individually (which is what we want), the cash received in the merger as Proceeds (Box 1d), and a Cost Basis (Box 1e) of `0.00`. This is correct for lots where your cost basis in VMware shares is less than approximately `$128.60`. For lots with a higher cost basis, you can recognize less capital gain via the alternative calculation provided in Form 8937. If you file with those unadjusted values from the 1099-B you're not going to be underpaying tax, but you may be paying more tax in 2023 than needed for those high basis lots. This would work itself out when you sell those lots, assuming you adjust the tax basis appropriately, but it's not ideal. The sheet aims to provide you with the specific Proceeds & Basis values to pay precisely what it owed in 2023. For many people the eTrade supplement contains incorrect basis values, in some cases even indicating a capital loss, and using those values could lead to underpayment of tax. The VMware share price was _never_ high enough for anyone to recognize an actual capital loss when receiving a mix of cash and stock in the merger. Form 8937 dictates the gain we should recognize for each lot, and therefore the value that must be entered into Form8949 column (h). To determine the other values I've worked through from first principles and validated using costbasis.com (reasoning promoted from [my working](https://github.com/hickeng/financial/issues/1#issuecomment-1950283122) in #1). This is here for people that want the details of the reasoning and calculations - you can safely skip this. Axioms: * realized gain and adjusted avgo basis are inflexible values dictated by f8937 * f8949 cash proceeds is inflexible as an actual dollar value credited & fmv of shares received * must pay tax on realized gain now * must pay tax on deferred gain on eventual sale (future basis must be adjusted for this) * difference between proceeds and basis reported on f8949 must equal realized gain The only flexible value we can adjust to reconcile the above is the reported f8949 basis. This logic is written agnostic of per-lot or per-vmw. I prefer normalized per-vmw, but we just need to use matching values for vmw_basis, avgo_fmv, and cash_recieved: ```python # known without calculation f8949_proceeds = cash_received + avgo_fmv # the alternate gain calculation from f8937 # translating it, this is also the real economic value received: total consideration - true basis alternate_gain_calc = cash_received + avgo_fmv - vmw_basis # the approximate threshold for per-share vmw basis (adjusted for dividends) where we switch clauses is # 0.2520 * 0.521 * 979.50 = 128.601 if cash_received < alternate_gain_calc { # composite vmw basis was lower than avgo fmv, ie. we've got a capital gain (avgo_fmv-vmw_basis) from the share consideration that is deferred. # gain mandated by f8937 does not include deferred gain. f8937_gain = cash_received # the deferred gain from vmw->avgo conversion must still be realized in the future. Adjustment # to avgo_basis is the way this is accomplished. This is rolled into the mandated f8937 basis adjustment. # we need the 2023 f8949 to reconcile correctly in the future against the deferred gain resulting from the inflexible # avgo_basis. future avgo_basis is dictated as vmw_basis - cash_received + f8937_gain which simplifies to vmw_basis # for this case. # # we're deferring avgo_fmv - vmw_basis gain to the future, and we must realize the cash_received as gain now. # we've got a mandated basis of vmw_basis for future sales, so our current basis is avgo_fmv to achieve the necessary delta. f8949_basis = avgo_fmv } else { # composite vmw basis was higher than avgo fmv - no deferral # gain mandated by f8937 f8937_gain = alternate_gain_calc # that's our true full gain, so we should be ok with a future avgo_basis of avgo_fmv... but f8937 says the adjusted avgo basis must be: # avgo_basis = vmw_basis - cash_received + f8937_gain # # This is still makes sense, as that simplifies # avgo_basis = vmw_basis - cash_received + cash_received + avgo_fmv - vmw_basis # avgo_basis = avgo_fmv f8949_basis = vmw_basis } # adjusted avgo basis for future sale - this is mandated by f8937 avgo_basis = vmw_basis - cash_received + f8937_gain ``` Links into the IRS webiste: * [IRS instructions for Form 8949](https://www.irs.gov/instructions/i8949) * [IRS Form 8949](https://www.irs.gov/pub/irs-pdf/f8949.pdf) </p></details> <p/> <details><summary>ESPP specific complexity</summary><p> The ESPP discount is considered ordinary income and _should_ be reported on your W2 when you sell the shares. In the past it has shown up on VMW W2's in `Box 14 Other`, labelled as ESPP. However, the proportion of the discount treated as ordinary income vs long term capital gain depends on whether the ESPP shares are qualified or disqualified and that's termed the Bargain Element. The recognition of ordinary income is not a consideration for lots exchanged for shares or mixed shares/cash. IRS tax code [Section 424(c)(1)(b)](https://www.law.cornell.edu/uscode/text/26/424#:~:text=an%20exchange%20to%20which%20section) explicitly excludes Section 356 exchanges from being considered as a disposition and 356 is what's noted in [Form 8937](documents/Broadcom%20-%20Form%208937%20Acquistion%20of%20VMware%20Inc..pdf) as governing the exchange. A big thank you to [@alkom](https://github.com/alkom) for [tracking down the specific section references](https://github.com/hickeng/financial/issues/15#issuecomment-1982794737). There's discussion in [#15](https://github.com/hickeng/financial/issues/15) regarding specifics - below is a distilation of current understanding of terms/impact relating to ESPP: * disqualified - sold within either 1 year from purchase date (when you got the shares aka exercise) or 2 years from grant date (when the ESPP period started aka offering). * qualified - held for 2 years past grant _and_ 1 year past purchase * tax basis - the actual amount you paid * grant date price - the Fair Market Value at ESPP grant date - because the final option price is not know at grant, this is the price used to determine the ordinary income amount. * purchase date price - the Fair Market Value when you actually acquired the share * Disposition - the share exits your control, eg. through a sale, gift, etc. * Surrender of VMW for cash+AVGO consideration under section 356 does _not_ count as a Disposition * Bargain element - I refer to this as imputed income. You pay tax on this via your W2 as if it were actual income on Disposition of the share (eg. sale). The broker should inform Broadcom of any future sale, and Broadcom should add it to your W2. If it does not show up on your W2 for some reason it's your responsibility to ensure it's reported. * [Qualified bargain element](https://fairmark.com/compensation-stock-options/employee-stock-purchase-plans/qualifying-disposition-reporting/) - `grant date price - purchase price`, which equates to 15% of grant date price for the VMware ESPP plan. If you made less than the bargain element in gain from Disposition, then it's the gain amount instead. * [Disqualified bargain element](https://fairmark.com/compensation-stock-options/employee-stock-purchase-plans/disqualifying-disposition-reporting/) - `purchase date price - actual amount paid` </p></details> <p/> <details><summary>Forms 8937 - IRS form detailing impact on tax basis from Organizational Actions </summary><p> These forms detail tax handling for an event. This includes qualified/unqualified amounts from dividends, how to adjust cost-basis, how to calculate gain that must be realized, etc. These are pulled from the [Broadcom Invester Relations](https://investors.broadcom.com/financial-information/tax-information) site. The acquisition form mostly uses non-imperative language, which leaves a lot of optionality for other treatments. My personal plan is to use the "generally ..." guidence absent a strong endorsement from a CPA for a different treatment being valid. Links to the relevant Form 8937's: * [Broadcom Acquisition](https://investors.broadcom.com/static-files/7720c4c1-c940-4d9d-800c-66819bfdc7a0) ([from repo](documents/Broadcom%20-%20Form%208937%20Acquistion%20of%20VMware%20Inc..pdf)) * [Dell recapitalization 2021](https://investors.broadcom.com/static-files/7ba40d05-a5b8-454d-8140-7f9782069523) - ([from repo](documents/IRS%20Form%208937%20-%20VMWARE,%20INC.%20November%201,%202021%20Recapitalization.pdf))applies if you received VMWs by virtue of owning Dell shares during the spin out. * [Dell distribution 2021](https://investors.broadcom.com/static-files/c03396b2-538b-42c3-910c-dce218d5d9f1) ([from repo](documents/IRS%20Form%208937%20-%20VMWARE,%20INC.%20November%201,%202021%20Distribution.pdf)) * [Dell distribution 2018](https://investors.broadcom.com/static-files/674c4fc3-6cc3-48cf-83b1-f6f6f3f75623) ([from repo](documents/IRS%20Form%208937%20-%20VMWARE,%20INC.%20December%2028,%202018%20Distribution.pdf)) Of note, there was a draft version of the 2021 Form 8937 with an estimated return of capital value. By inspection of statements and 1099-B by multiple people, it's this estimate that was used for our taxes that year and therefore should be the basis adjustment. See [#83](https://github.com/hickeng/financial/issues/83). * [Dell distribution 2021 - draft version](documents/Form%208937%20-%20October%2029,%202021.pdf) ### Pro-rata vs other allocation of cash/share split > a shareholder ... is treated as having surrendered each share _for a pro rata portion of the stock and cash received_, based on the [fair market value](https://github.com/hickeng/financial/edit/main/README.md#on-fair-market-value) of such surrendered share, _unless the terms of the exchange provide otherwise and are economically reasonable_. > If a holder of VMware Common Stock acquired different blocks of shares ... at different times or different prices, any gain or loss _may_ be determined separately for each block of shares ... . Any such holder should consult their tax advisor regarding the manner in which the Cash Consideration and Stock Consideration should be allocated among different blocks of shares of VMware Common Stock surrendered. Per my reading, this explicitly states that we have the option to chose _not_ to use a pro-rata approach to calculating the cash/stock split. I've an [issue](https://github.com/hickeng/financial/issues/13) to collect data on _when_ we're allowed to make this choice. The first quote is referencing the FMV of a VMW share at the time of acquisition. Unclear to me if this is the composite value of VMW considering the stock/cash conversion, or just the VMW trading value. I've an [issue](https://github.com/hickeng/financial/issues/14) to follow up on this. ### Realized gain calculation > ... a holder ... who received a combination of ... Stock and cash ... will recognize gain (but not loss) for U.S. federal income tax purposes in an amount equal to the lesser of > (1) the sum of the amount of the cash ... and the fair market value of the Broadcom Common Stock received in exchange ..., minus the holder’s adjusted tax basis in ... VMware Common Stock surrendered..., and > (2) the amount of cash received for such share of VMware Common Stock. We recognize gain, per lot, on the lesser of: * `cash portion` * `cash portion + FMV AVGO - VMW basis` You'll recognize the cash unless your VMW basis was higher than the FMV of the AVGO received. ### Basis calculation - post-acquisition sale of AVGO The concise version of future tax basis of RSUs, calculated per lot, is: * basis prior to merger - cash received + gain recognized Gain recognized is the lesser of (per Form 8937): * cash received * cash received + FMV AVGO received - basis prior to merger That simplifies the tax basis calculation to the lesser of: * basis prior to merger * FMV AVGO received ### On Fair Market Value [Yahoo Finance market data for the period in question](https://ca.finance.yahoo.com/quote/AVGO/history?period1=1700438400&period2=1700870400&interval=1d&filter=history&frequency=1d&includeAdjustedClose=true) > Fair market value generally is the price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the facts. > ... tax law does not specifically prescribe ... the fair market value ... for purposes of calculating any gain recognized .... > One reasonable approach is ... the mean ... trading price on November 22, 2023, which is $979.50 .... Other approaches ... may be appropriate. _You should consult your tax advisor to determine what measure of fair market value is appropriate._ I have an [issue](https://github.com/hickeng/financial/issues/11) open to determine the knwoledge available to our hypothetical buyer/seller pair and add other FMV options to the dropdown in the spreadsheet. ### Fractional share sale > A holder of VMware Common Stock who received cash in lieu of a fractional share ... will generally be treated as having received such fractional share and then as having received such cash in redemption of the fractional share. > Gain or loss generally will be recognized based on the difference between the amount of cash in lieu of the fractional share and the tax basis allocated to such fractional share. This details sequential steps of: 1. receive fractional share 2. sell fractional share I'm interpreting that as needing to calculate the gain for the fractional share sale (step 2) using the new cost basis, post conversion. You'll have also seperately recognised gain on the conversion of the fraction (step 1). If the fraction was attributed against an ESPP share this implies recognizing the ordinary income associated with the fraction given it's a sale. > The amount paid for a fractional share of Broadcom Common Stock _was based on_ the closing price of Broadcom Common Stock as reported on the NASDAQ on November 21, 2023, which was $981.20. eTrade did not use the value explicitly specified in f8937 for the fraction. I do not know what consequence "based on" has in this sentence. I've an [issue](https://github.com/hickeng/financial/issues/12) to determine handling for this. </p></details> <p/> ", Assign "at most 3 tags" to the expected json: {"id":"8345","tags":[]} "only from the tags list I provide: [{"id":77,"name":"3d"},{"id":89,"name":"agent"},{"id":17,"name":"ai"},{"id":54,"name":"algorithm"},{"id":24,"name":"api"},{"id":44,"name":"authentication"},{"id":3,"name":"aws"},{"id":27,"name":"backend"},{"id":60,"name":"benchmark"},{"id":72,"name":"best-practices"},{"id":39,"name":"bitcoin"},{"id":37,"name":"blockchain"},{"id":1,"name":"blog"},{"id":45,"name":"bundler"},{"id":58,"name":"cache"},{"id":21,"name":"chat"},{"id":49,"name":"cicd"},{"id":4,"name":"cli"},{"id":64,"name":"cloud-native"},{"id":48,"name":"cms"},{"id":61,"name":"compiler"},{"id":68,"name":"containerization"},{"id":92,"name":"crm"},{"id":34,"name":"data"},{"id":47,"name":"database"},{"id":8,"name":"declarative-gui "},{"id":9,"name":"deploy-tool"},{"id":53,"name":"desktop-app"},{"id":6,"name":"dev-exp-lib"},{"id":59,"name":"dev-tool"},{"id":13,"name":"ecommerce"},{"id":26,"name":"editor"},{"id":66,"name":"emulator"},{"id":62,"name":"filesystem"},{"id":80,"name":"finance"},{"id":15,"name":"firmware"},{"id":73,"name":"for-fun"},{"id":2,"name":"framework"},{"id":11,"name":"frontend"},{"id":22,"name":"game"},{"id":81,"name":"game-engine "},{"id":23,"name":"graphql"},{"id":84,"name":"gui"},{"id":91,"name":"http"},{"id":5,"name":"http-client"},{"id":51,"name":"iac"},{"id":30,"name":"ide"},{"id":78,"name":"iot"},{"id":40,"name":"json"},{"id":83,"name":"julian"},{"id":38,"name":"k8s"},{"id":31,"name":"language"},{"id":10,"name":"learning-resource"},{"id":33,"name":"lib"},{"id":41,"name":"linter"},{"id":28,"name":"lms"},{"id":16,"name":"logging"},{"id":76,"name":"low-code"},{"id":90,"name":"message-queue"},{"id":42,"name":"mobile-app"},{"id":18,"name":"monitoring"},{"id":36,"name":"networking"},{"id":7,"name":"node-version"},{"id":55,"name":"nosql"},{"id":57,"name":"observability"},{"id":46,"name":"orm"},{"id":52,"name":"os"},{"id":14,"name":"parser"},{"id":74,"name":"react"},{"id":82,"name":"real-time"},{"id":56,"name":"robot"},{"id":65,"name":"runtime"},{"id":32,"name":"sdk"},{"id":71,"name":"search"},{"id":63,"name":"secrets"},{"id":25,"name":"security"},{"id":85,"name":"server"},{"id":86,"name":"serverless"},{"id":70,"name":"storage"},{"id":75,"name":"system-design"},{"id":79,"name":"terminal"},{"id":29,"name":"testing"},{"id":12,"name":"ui"},{"id":50,"name":"ux"},{"id":88,"name":"video"},{"id":20,"name":"web-app"},{"id":35,"name":"web-server"},{"id":43,"name":"webassembly"},{"id":69,"name":"workflow"},{"id":87,"name":"yaml"}]" returns me the "expected json"