No. of Recommendations: 3
[original post]
Shareholders received the parent companies cost basis ...
[response]
I don't see how this could work. Let's say the Apple holdings are worth $200B (out of a $1T market cap) at the time of spin off. Therefore, holders of each B share (equivalent B share for A share holders) would receive 0.2 (roughly) shares of Apple. And Berkshire's basis in Apple is $39.62 per share. So if you purchased 1000 BRKB shares a few days ago at $500 each, then you would receive 200 AAPL shares with a basis of $39.62 each. If you sell those AAPL shares today at $285.62, you have realized a taxable capital gain of 200 * ($285.62 - 39.62), or $49,200. Meanwhile, your BRKB shares should go down by about 20% because Berkshire distributed about 20% of the total value. So the formerly $500 BRKB shares are now about $400 each. I don't see how it could work this way because the basis is illogical and it forced a sudden large capital gain that can only be offset by a large capital loss upon selling the BRKB shares. The whole thing doesn't make sense, heck, it's worse than distributing a large special dividend and forcing a mostly undesired taxable event for many people (like Microsoft did to so many people 21 years ago).
This type of tax-free distribution should only work when the distributing (investor) corporation owns and controls the distributed (investee) corporation. That's obviously not the case here - Berkshire does not control Apple in any sense. So rather than getting the section 355 tax-free spinoff exception treatment, Berkshire would be taxed at the corporate level for the difference between the cost basis and fair value (as if they sold the shares they were distributing), and Berkshire investors would receive shares with a distribution-date cost basis (i.e., not inherit Berkshire's cost basis) and be taxed on that distribution-date value as if they had received cash (assuming Berkshire shares were held in a taxable account).
