Dell Class V transaction - DELL and DVMT

Microsoft Word - Dell class V to DELL.docDell Technologies completed its class V transaction bringing Dell Technologies (DELL) public rather than just as the tracking stock (DVMT).

The SEC filing for this merger can be found through the SEC web site at: https://www.sec.gov/Archives/edgar/data/1571996/000119312518303075/d681091d424b3.htm . This is a form 424B dated 10/19/2018.

DVMT shareholders had a choice of receiving all cash or all DELL shares in exchange for their DVMT shares. The all cash option was oversubscribed. The cash option was then prorated so shareholders choosing the cash option received both cash and DELL shares. The tax consequences are different for each of these exchange options.

 

The all DELL shares option is a non-taxable event. It can be entered as a simple merger in the accounting software.

The all cash option became a cash-plus-stock reorganization where gain but not loss can be realized. All the information below is from the information available from the Form 424B filed with the SEC except the price per share of DELL on the transaction date. First, if you have made any entries for this transaction in the Club Accounting software, you should delete them. These instructions start with details for users of Club Accounting 3, the desktop version of the software. Myiclub users can use the Merger transaction for the all DELL stock option or the Merger with Cash transaction for the results of the all cash option. Instructions for Myiclub users are included after the instructions for Club Accounting 3 users.

These instructions assume ALL shares of DVMT owned were chosen to be exchanged for all cash or all DELL shares. Different entries and calculations will be needed if you split shares between all cash and all shares of Dell in the exchange. Please contact ICLUBcentral support if you made a split designation.

 

Instructions for Club Accounting 3 Users.

All DELL shares option Treat this as a simple merger.

Here is the information you need to complete the merger.

  • Date: 12/28/2018
  • Old Security or Merging Company: Dell class V (DVMT)
  • Price per share of old Security / DVMT: Use last valuation, if needed
  • Cash received: See your broker statement for cash-in-lieu
  • New Security: Dell technologies (DELL)
  • New Security Price: 45.43 (Closing price on 12/28/2018)
  • Shares received : 1.8066 x (#of DVMT shares owned) (Remember to include fractional shares.)

For example, if you owned 100 DVMT shares, you should receive 1.8066 x 100 = 180.66 DELL shares.

Save the transaction and the merger has been entered.

 

All Cash option

If you chose to receive all cash you actually received cash and DELL shares.

To record this merger will require multiple entries in the accounting software. The basic outline of these entries is given below:

Calculate the capital gains, both long-term (LTCG) and short-term (STCG) on a block by block basis. Adjust for the structure of the merger (Gain can be no greater than cash received and losses may not be recognized.)

Enter capital gain distributions for the LTCG and STCG.

Enter a smaller Return of capital for the remainder of the cash received, if any. Enter the actual merger transaction

The capital gain realized is limited to the actual cash received so some clubs may need to adjust the capital gain amounts before entering the capital gain distributions. Instructions for doing this are included. The total merger consideration is $106.3998 per DVMT share. Your capital gain will be based on this total consideration with a limit that the total capital gain cannot exceed the total cash received, excluding cash-in-lieu of fractional shares.

 

  • Calculate the capital gain.

    The total merger consideration is $106.3998 per DVMT share. This is $76.968 in cash and $29.4318 of value in DELL shares. Calculate the total value received for your DVMT shares by multiplying 106.3998 by the total shares of DVMT owned. This must be done on a block by block basis.

    Total Proceeds = [106.3998 x (# of DVMT shares owned in each block)]. (Do this calculation for each block of shares.)

    Write down the total proceeds amount on paper or spreadsheet for each block of DVMT shares owned. From the total proceeds subtract the cost basis of that particular block. This will give you the gain for each block of DVMT shares using the total proceeds. Ignore any blocks with a loss. The cost basis can be found by starting a partial sale of DVMT. A block selection screen will appear with the date purchased, number of shares and current cost basis for each block. Copy this information then cancel the sale.

    Next calculate the cash received for each block, for those blocks with a capital gain. The equation for this is [76.968x (# of DVMT shares owned in each block)]. For each block compare the cash received for that block with the capital gain calculated previously for that block. The smaller of the numbers is your gain from that block. Remember to ignore any blocks with a calculated loss using the total proceeds equation. Once you have the adjusted capital gain for each block with a gain, which is the smaller of a) the cash received or b) the total proceeds gain, add all the gains from each block with a gain. This will be your total capital gain for this merger. Remember to differentiate between short term and long-term gains. (Check the purchase date of each block and compare it to the merger completion date of 6/15/18.)

    You should now have a figure for long-term and short-term capital gains recognized from this merger. If this amount is less than the total cash received, not including cash-in-lieu for fractional shares, then subtract the sum of your capital gains from the total cash received. This will be [76.968 x (total # of DVMT shares owned)] – (sum of capital gains). This amount will be entered as a return of capital.

  • Accounting for Cash Received

    All of the following entries use the cash dividend screen, in CA3 this is Transactions > Cash Dividend or Distribution.

    Date these transactions 6/15/2018

    The security should be Dell class V (DVMT) Change the “type” field to Long-term capital gain. Amount should be your LTCG as calculated above.

    Next repeat the process for your short-term capital gain. Change the “type” field to Short-term capital gain.

    Amount should be your STCG as calculated above. Finally, enter a return of capital entry, if needed.

    Change the “type” field to Return of capital.

    Amount should be: (Total Cash received) – (LTCG + STCG)

    If your LTCG + STCG = Total Cash Received, no return of capital entry is needed. Continue to step 3, The Merger.

     

  • The Merger

    Go to Transactions > Merger. 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.

    Date: 12/28/2018

    Old Security or Merging Company: Dell class V (DVMT)

    Price per share of old Security / DVMT: Use the last valuation price

    Cash received: See your broker statement for cash-in-lieu

    New Security: Dell Technologies (DELL)

    Shares received: .64785 x (# of original DVMT shares owned) (Remember to include fractional shares.)

    Save the transaction and this is finally done.

     

    A worksheet is provided below to record the items that need to be calculated.

    1. Total Proceeds received.

      106.3998 x (# of DVMT shares in block) =

       

    2. Total cash received.

      [76.968x (# of DVMT shares in block)] =

       

    3. Cost Basis of this block of DVMT shares

      (from accounting records)

       

    4. Total Proceeds LTCG = (A-B) fill-in D or E as appropriate

       

    5. Total Proceeds STCG = (A-B) fill-in D or E as appropriate

       

    6. Actual LTCG

      (the lessor of B or D.)

       

    7. Actual STCG (the lessor of B or E.)

       

    8. LTCG + STCG = .

       

    9. Return of Capital amount = (Total Cash Received) – (LTCG + STCG) = Use this if (LTCG + STCG) is less than Total Cash received.

       

    10. Shares of DELL Received = .64785 x (#DVMT shares owned) = . (For the merger transaction)

 

Instructions for Myiclub Users.

 

All DELL shares option. Treat this as a simple merger.

Here is the information you need to complete the merger.

  • Date: 12/28/2018
  • Old Security or Merging Company: Dell class V (DVMT)
  • Price per share of old Security / DVMT: Use last valuation, if needed
  • Cash received: See your broker statement for cash-in-lieu
  • New Security: Dell technologies (DELL)
  • New Security Price: 45.43 (Closing price on 12/28/2018)
  • Shares received : 1.8066 x (#of DVMT shares owned) (Remember to include fractional shares.)

For example, if you owned 100 DVMT shares, you should receive 1.8066 x 100 = 180.66 DELL shares.

Save the transaction and the merger has been entered.

 

All Cash option

Use the Merger with cash transaction. Step 1

Date – 12/28/2018

Merging Company – DVMT (Dell classV) Step 2

Be sure to choose the option Transaction is taxable to a maximum of the cash received.

 

Cash per share received: 76.968

Exchange ratio of new to old shares: .64785 TO 1

Price per share of new shares on merger date: 45.43 (Closing price on 12/28/2018) Reorganization Fee: See your broker statement

 

Symbol of New Company: DELL (Dell Technologies)

Shares received and Price per Share should auto-fill from information above. Cash Received: See your broker statement for cash-in-lieu amount.

 

Important Reminders:

The tax status of this merger may be subject to change if the IRS challenges the company interpretation of the tax code as it relates to this merger or if the analysis of the conditions mentioned in form 424B requires a change. It may be necessary to change the entries for this merger at a later date.

If you made a split designation, all cash for some DVMT shares and all Dell shares for the remaining DVMT shares please contact ICLUBcentral support. The cash received and exchange ratio will need to be recalculated for individual such cases.

 

In Merger with cash transactions, realized capital 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 choice 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.