Marriot and Starwood agreed to a merger. As part of the merger Starwood was to spinoff its time share business as Vistana (VSE). Vistana then immediately merged with Interval Leisure Group (ILG.) After the Vistana spinoff, Starwood merged with Marriott in a partially taxable cash-and-stock merger. This merger occurred several months after the Vistana spinoff.
This operation requires a few separate transactions to be entered, which the following steps describe:
The Spinoff of Vistana from Starwood :
Go to Transactions > Spinoff or Accounting > Securities > Record spinoff of securities depending on the version of the software being used. If you are unfamiliar with spinoff transactions you can get help at this URL: https://www.iclub.com/support/kb/default.asp?page=normal_spinoff
Here is the information you need to complete the spinoff.
Save the transaction and the spinoff has been entered.
The cost basis allocation is dependent on the prices used for both Starwood and Vistana in the cost basis calculations. In our experience brokers tend to use the prices found in the guidance companies post on their websites including IRS form 8937. If your broker does not use that guidance, the cost basis of the companies involved as recorded in your accounting records and in your broker’s records will not match. This is not cause for concern. This is just due to the inexact nature of the tax code in this regard. Partnership tax returns have specific areas to reconcile these usually small differences. ICLUBcentral tax printer software automatically fills in these adjustments in the normal operation of the software using the data imported from your accounting records and that you enter from your 1099. This transaction is more complex as VSE never traded publicly. The shares were immediately converted to ILG shares. The price listed above for VSE is based on the value of the ILG shares received in the merger.
The next portion is the merger of VSE with ILG.
The Merger Entry of VSE with ILG
Go to Transactions > Merger or Accounting > Securities > Record merger of securities depending on the version of the software being used. If you are unfamiliar with merger transactions you can get help at this url: https://www.iclub.com/support/kb/default.asp?page=normal_merger
Here is the information you need to complete the merger.
Save the transaction and the merger has been entered.
You have completed the first portion of this Marriot and Starwood transaction. Next is the actual merger between the two companies.
The Starwood – Marriot Merger transactions
This merger is a cash-plus-stock reorganization. All the information below is from the information available from the Form S-4 filed with the SEC. Be aware that the S-4 document explicitly states that all tax consequences are not completely knowable at the time of the merger. Depending on certain circumstances, the cash received may be treated as a dividend. This treatment is unusual for small retail holders of the involved companies.
First, if you have made any entries for this transaction in the Club Accounting software, you should delete them. Myiclub users can use the Merger with Cash transaction, with the following information.
Be sure to choose the option Transaction is taxable to a maximum of the cash received.
The tax status of this merger is subject to change if the IRS challenges the company interpretation of the tax code as it relates to this merger or if the analyses of the conditions mentioned in form S-4A require a change. It may be necessary to change the entries for this merger at a later date.
In Merger with cash transactions, realizedcapital gains and the cost basis of the new shares have a component dependent on the price per share chosen in the entry screens. In our experience brokers tend to use the price per share published by the companies on their websites in their guidance to shareholders. If the companies publish guidance with a share price, we use that share price in our instructions to minimize possible differences between the accounting records and broker information. In cases where no guidance is available, we will choose the lower of the opening or closing price on the effective date. Either of these prices is acceptable to the IRS and by choosing the lower price some realized capital gains will be deferred to a later date. However, there is always the chance the price we choose will not be the price chosen by your broker. The gain from the merger and cost basis of the new shares recorded in your accounting records will then differ from your broker information. Because of the lack of detail in the tax code, both our choice and your broker’s choices would be reasonable estimates of market value for the shares received. Your records are NOT incorrect because they differ from your broker. Tax return forms do have specific areas to report these usually small differences. Our tax printer software handles these adjustment entries automatically in the normal operation of the software.