Spinoff of Arlo Technologies (ARLO) from Netgear (NTGR)
Netgear spun off Arlo Technologies effective December 31, 2018 in a transaction meant to be tax-free to its shareholders. The cost basis allocation information is from IRS form 8937. A link to this form can be found on the Netgear web site https://s22.q4cdn.com/334267776/files/doc_downloads/2019/Form-8937.pdf. In their example, Netgear used the opening prices on January 2, 2019 to calculate the cost basis allocation.
This action is a standard spinoff transaction in the accounting software. The information below is based on the information available from the cost basis allocation information on the Netgear web site. Please note, Netgear states that its interpretation of tax law may be challenged by the IRS and this spinoff may be deemed a taxable event in the future.
The Spinoff Entry
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.
Date: 12/30/2018 (One day earlier so as not to interfere with the allocation of income process)
Select Parent Security (or Parent Company) : Netgear (NTGR)
Remaining Basis Percentage: 62.25
Cash received: See your broker statement for cash-in-lieu received
Spinoff Security (or Symbol of New Company) : Arlo Technologies Corp (ARLO)
Shares received : 1.9803 x (# of NTGR shares owned) (Remember to include fractional shares.) This exchange ratio is rounded from 1.98295.
For example, if you owned 100 NTGR shares, you should receive 1.9803 x 100 = 198.03 ARLO shares.
Price Per Share : 9.83 (Opening price on 1/2/2019)
Save the transaction and the spinoff has been entered.
The cost basis allocation is dependent on the prices used for both Netgear and Arlo Technologies 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.