Cassava Sciences distributed warrants to their shareholders in a transaction meant to be tax-free to SAVA shareholders. The warrant distribution occurred on January 5, 2024. The warrants began normal trading on January 8, 2024. SAVA shareholders received 4 warrants (SAVAW) for each 10 shares of SAVA owned. Fractional warrants were not distributed and cash-in-lieu of fractional warrants was not distributed. Due to this feature of the distribution, the number of warrants received may be rounded to the nearest whole warrant. Check your broker statement for the actual number of warrants received to ensure accuracy.
Resolution:
The tax code section referenced in the warrant information from Cassava Sciences indicates a cost basis adjustment is required for this transaction. To accomplish the basis adjustment this action will be treated as a simple spinoff transaction in the accounting software. It is structured to be a non-taxable event for SAVA shareholders according to the shareholder prospectus. The cost basis allocation information is calculated from the average of the opening and closing prices of SAVAW and SAVA on the first trading day of SAVAW, January 8, 2024. This method to determine fair market value of the post spinoff companies is commonly used. A link to IRS Form 8937 was not available at the time these instructions were written.
NOTES:
The cost basis allocation is dependent on the prices used for both the Cassava Sciences warrants (SAVAW) and Cassava Sciences (SAVA) in the cost basis allocation calculations. In our experience brokers tend to use the prices found in the guidance companies post on their websites including IRS form 8937. If available our instructions will use the guidance in form 8937. If your broker does not use that guidance, or form 8937 is not publicly available, 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.
The tax consequences of warrant distributions can be complex. We do our best to reflect the tax implications in these instructions but we have no tax attorneys on staff. Consultation with a tax professional may be warranted to accurately reflect your situation.
The Spinoff Entry
Go to Accounting > Securities > Record spinoff of securities in myICLUB.com. If you are unfamiliar with spinoff transactions you can get help at this URL: https://www.myiclub.com/faq/article.aspx?id=54
Here is the information you need to complete the spinoff.
Save the transaction and the spinoff has been entered.
