Spinoffs

What this video covers

• What a spinoff is: a corporation distributing shares of a subsidiary to existing shareholders as a dividend at no cash cost
• Why the parent company's stock price adjusts downward after the distribution, and where that value actually goes
• How cost basis is split between parent and subsidiary based on relative fair market value (FMV), and why the new shares are NOT zero-basis stock
• The tax-free spinoff requirements under the IRC: the 80% distribution threshold and the 5-year active trade or business rule
• Why shareholders recognize no gain or loss at distribution, and when the tax consequences are actually triggered
• The tacking on rule for holding periods, and why subsidiary shares can be long-term from day one
• The classic exam trap of resetting the holding period clock, and how to dodge it