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Tim Hortons
i received a 1099-B from Tim Hortons that i received gross
proceeds from them when they transfered from a US Company to
a Canadain Company and my CPA now tells me that i have to
claim that is income for my taxes has anyone else had that
happen to them and do i have to claim it as income

Hi Herb,

Yes.  Your CPA is correct.    There are a few times when you need to realize a capital gain from a stock even if you haven’t sold it and this is one of them.  You will need to report this gain on your 2009 taxes if your basis in THI was less than $27.99

Unfortunately,  we did not hear about this until early February.  At that time we corrected the records of clubs that owned Tim Hortons.  If they had already filed tax returns,  we notified them that they might need to file amended returns.

It is good that you asked somebody when you received this information.  Many times,  I think we receive communications from brokerages about stocks we own that are difficult to understand.  They always seem to come with the caveat “Consult your tax advisor”.   As you have found out,  many  times there are tax issues that need to be investigated and accounted for correctly.  It is not always easy to figure out what to do. 

Part of the service you get from bivio is the fact that we will do this investigation and figure out these things for you.     I hope everyone remembers this when you receive something you don’t understand from your broker.  Don’t just throw it away.  Let us know.

             Laurie Frederiksen

 

Here are the instructions that need to be followed to report this income correctly.

On 9/25/2009 Tim Horton [THI] transferred from NYSE to the Canadian exchange. This resulted in a taxable consequence for those shareholders whose basis in THI was less the $27.99, the fair market value of THI on that date. Those shareholders are considered to have a deemed disposition on that date. That means they must record a sale of THI for the market price of $27.99 per share, and buy the new THI for the same price. Gain on the deemed sale is considered taxable. If the basis per share was equal to or more than 27.99, there is no deemed disposition, and nothing has to be done.

  

To correct this, in bivio, take the following steps:

You will have to find all purchases of TMI at a price below $27.99. As of 9/25/2009, enter a sale for those shares at a price of $27.99. In the remarks, you can say 'to record deemed sale on transfer to Canadian exchange'.

 

On 9/25/2009, enter a purchase for THI, for all the shares sold in the previous paragraph, at $27.99 a share.

 

When you are through, you will have recorded the gain from the deemed disposition, and established a new holding period on the new shares of THI.

You may (or may not) have to claim it as income. The corporate reorganization distribution is treated as a return of capital, followed by a reinvestment in the new company. If the distribution is more than your cost basis in the old Tim Hortons, you have a capital gain to report. If less, then you report $0 capital gain. Your ongoing cost basis in Tim Hortons is the greater of your original cost basis or the amount reported on the 1099-B.
 
Ira Smilovitz
Join me at InvestEd 2010
Investor Education at Its BestTM
Baltimore, MD August 6 - 8, 2010
http://www.investor-education2010.org/
 
In a message dated 03/29/10 15:28:09 Eastern Daylight Time, hlemcool@bivio.com writes:
i received a 1099-B from Tim Hortons that i received gross
proceeds from them when they transfered from a US Company to
a Canadain Company and my CPA now tells me that i have to
claim that is income for my taxes has anyone else had that
happen to them and do i have to claim it as income
 
 
Laurie,
 
Not explicit in your description of the appropriate transaction entries is the requirement that each block of Tim Hortons's shares be treated independently of the others. It is possible that clubs might have to report a gain on some of their shares but not others.
 
Ira Smilovitz
Join me at InvestEd 2010
Investor Education at Its BestTM
Baltimore, MD August 6 - 8, 2010
http://www.investor-education2010.org/
 
 
In a message dated 03/29/10 15:59:57 Eastern Daylight Time, laurie@bivio.biz writes:

Hi Herb,

Yes.  Your CPA is correct.    There are a few times when you need to realize a capital gain from a stock even if you haven't sold it and this is one of them.  You will need to report this gain on your 2009 taxes if your basis in THI was less than $27.99

Unfortunately,  we did not hear about this until early February.  At that time we corrected the records of clubs that owned Tim Hortons.  If they had already filed tax returns,  we notified them that they might need to file amended returns.

It is good that you asked somebody when you received this information.  Many times,  I think we receive communications from brokerages about stocks we own that are difficult to understand.  They always seem to come with the caveat "Consult your tax advisor".   As you have found out,  many  times there are tax issues that need to be investigated and accounted for correctly.  It is not always easy to figure out what to do. 

Part of the service you get from bivio is the fact that we will do this investigation and figure out these things for you.     I hope everyone remembers this when you receive something you don't understand from your broker.  Don't just throw it away.  Let us know.

             Laurie Frederiksen

 

Here are the instructions that need to be followed to report this income correctly.

On 9/25/2009 Tim Horton [THI] transferred from NYSE to the Canadian exchange. This resulted in a taxable consequence for those shareholders whose basis in THI was less the $27.99, the fair market value of THI on that date. Those shareholders are considered to have a deemed disposition on that date. That means they must record a sale of THI for the market price of $27.99 per share, and buy the new THI for the same price. Gain on the deemed sale is considered taxable. If the basis per share was equal to or more than 27.99, there is no deemed disposition, and nothing has to be done.

  

To correct this, in bivio, take the following steps:

You will have to find all purchases of TMI at a price below $27.99. As of 9/25/2009, enter a sale for those shares at a price of $27.99. In the remarks, you can say 'to record deemed sale on transfer to Canadian exchange'.

 

On 9/25/2009, enter a purchase for THI, for all the shares sold in the previous paragraph, at $27.99 a share.

 

When you are through, you will have recorded the gain from the deemed disposition, and established a new holding period on the new shares of THI.

 
 
Ira,

Maybe we are all saying the same thing, but it doesn't hurt to make sure. I
don't see it quite the way that you do, when you say....
<<
'The corporate reorganization distribution is treated as a return of
capital, followed by a reinvestment in the new company.
>>

I see it as having to report a gain on any lots where the FMV of the shares
is more than the basis. On those shares, there is a new holding period. On
lots where the FMV of the new shares is less than the old basis, no exchange
takes place and the holding period and basis is taken from the old shares.

Are we in agreement?

Here's the blurb on the website....
<<
United States Tax Considerations
Taxation of U.S. Holders. The reorganization should be characterized for
U.S. federal income tax purposes as a transaction in which U.S. Holders will
recognize taxable gain, if any (but not loss), in an amount equal to the
excess of the fair market value of the New THI common shares received in the
merger over their tax basis in the THI USA common stock converted therefore.
Shareholders recognizing a gain will have a basis in their New THI common
shares equal to the basis in their THI USA common stock converted therefore
plus the amount of gain recognized. Stockholders realizing a loss on the
conversion will have a basis in the New THI common stock equal to the basis
in their THI USA common stock converted therefore.
>>

Rip West
Saint Paul, MN
I'm not sure we are in agreement. My interpretation was that the holding period resets to the reorganization date regardless of what the original cost basis was and whether a reportable gain was realized.
 
Ira Smilovitz
Join me at InvestEd 2010
Investor Education at Its BestTM
Baltimore, MD August 6 - 8, 2010
http://www.investor-education2010.org/
 
 
In a message dated 03/29/10 21:21:55 Eastern Daylight Time, ripwest@comcast.net writes:
I see it as having to report a gain on any lots where the FMV of the shares
is more than the basis. On those shares, there is a new holding period. On
lots where the FMV of the new shares is less than the old basis, no exchange
takes place and the holding period and basis is taken from the old shares.

Are we in agreement?
 
 
Ira,
 
<<
I'm not sure we are in agreement. My interpretation was that the holding period resets to the reorganization date regardless of what the original cost basis was and whether a reportable gain was realized.
>>
 
I can't see how you can establish a new holding period if you didn't recognize the taxable exchange on those shares with a loss. I have sent an email to Tim Horton Investor Relations for clarification. I hope they answer, but they may well just tell me to consult my tax advisor.<g>
 
Rip West
Saint Paul, MN
 
Rip,
 
It looks like we may both be wrong. I went back to the S-4 registration statement and found the following (pg. 36):
 
A U.S. holder's holding period in New THI common shares should include the U.S. Holder's holding period in the THI USA common stock transferred upon the merger, even if the U.S. Holder recognized a gain on the THI USA common stock prior to transfer.
 
Ira Smilovitz
Join me at InvestEd 2010
Investor Education at Its BestTM
Baltimore, MD August 6 - 8, 2010
http://www.investor-education2010.org/
 
In a message dated 03/30/10 07:39:42 Eastern Daylight Time, ripwest@comcast.net writes:
Ira,
 
<<
I'm not sure we are in agreement. My interpretation was that the holding period resets to the reorganization date regardless of what the original cost basis was and whether a reportable gain was realized.
>>
 
I can't see how you can establish a new holding period if you didn't recognize the taxable exchange on those shares with a loss. I have sent an email to Tim Horton Investor Relations for clarification. I hope they answer, but they may well just tell me to consult my tax advisor.<g>
 
Rip West
Saint Paul, MN
 
 
 

Ira,
 
Nicely done. I just got a message from THI which referred me to their website, which I had quoted to them, and didn't answer the question. I don't understand the reasoning behind the S-4, but I am willing to accept it.
 
Rip West
Saint Paul, MN