Form 8937: Report of Organizational Actions Affecting Basis of Securities

IRS Form 8937: Report of Organizational Actions Affecting Basis of Securities

IRS Form 8937 is an essential document for taxpayers who need to report organizational actions affecting the basis of securities. This form is often filed by corporations, partnerships, and other entities that have undertaken actions that impact the tax basis of securities held by their investors. The purpose of Form 8937 is to provide investors with crucial information needed to adjust their basis in securities after corporate events, such as stock splits, mergers, or other reorganizations.

In this comprehensive guide, we will explain the purpose of Form 8937, the types of organizational actions that require reporting, and how to complete the form accurately.

What is IRS Form 8937?

IRS Form 8937 is used by corporations and other entities to report organizational actions that affect the basis of securities. It’s important for businesses that issue securities or undergo organizational changes like stock splits, mergers, dividends, or spin-offs that could impact the tax basis of those securities. The form serves as a communication tool between the issuer and shareholders to ensure that the shareholders have accurate and up-to-date information regarding their investments.

The IRS requires these reports to be filed for any organizational actions that affect the cost basis of securities, which in turn affects the tax treatment of gains or losses when those securities are sold or disposed of.

Who Must File IRS Form 8937?

Corporations and other entities that undertake organizational actions impacting the basis of securities are responsible for filing Form 8937. Common situations where this form must be filed include:

1. Corporate Mergers and Acquisitions:
   If a corporation is involved in a merger, acquisition, or consolidation, it may impact the basis of the shares of the acquired or merging company. Form 8937 reports the changes to the basis of the securities held by the investors.

2. Stock Splits and Reverse Stock Splits:
   When a company conducts a stock split (or reverse stock split), shareholders’ basis in their securities must be adjusted accordingly. Form 8937 provides shareholders with the necessary information to make those adjustments.

3. Spin-offs:
   A spin-off occurs when a corporation distributes its subsidiary or division to its shareholders. This action can affect the tax basis of the original securities and the newly issued ones, requiring the filing of Form 8937 to inform shareholders.

4. Distributions of Stock or Other Securities:
   In certain cases, a corporation may issue additional securities or stock dividends that impact the shareholder’s basis in the securities they hold. These events must also be reported on Form 8937.

5. Reorganizations and Other Corporate Actions:
   Any action that materially impacts the securities, such as debt restructurings or changes in preferred stock, requires reporting on this form.

Key Information Required on IRS Form 8937

To complete Form 8937 accurately, several key pieces of information must be included. The form is divided into multiple sections where different details need to be provided. Here’s what you’ll need:

1. Entity Information:

   • The name, address, and Employer Identification Number (EIN) of the corporation or entity responsible for the organizational action.
   • The name of the action or event that took place (e.g., merger, stock split, spin-off).

2. Description of the Organizational Action:

   • A detailed explanation of the organizational action that occurred, including the type of event and how it affects the tax basis of the securities involved.

3. Dates of Organizational Actions:

   • The effective date of the organizational action (the date on which the event occurred, such as the date of the merger, stock split, etc.).

4. Impact on the Securities:

   • A description of how the organizational action affects the securities held by investors, including whether the action results in an increase or decrease in the number of securities and the effect on the basis per share.

5. New Basis Calculations:

   • If applicable, you must provide the new basis of the securities after the event. For example, in a stock split, the new number of shares and the adjusted per-share basis must be reported.

6. Adjustments to Shareholders:

   • A clear breakdown of how the organizational action affects shareholders, including any tax implications such as dividends, reclassification, or capital gains.

7. Supporting Documentation:

   • If required, include any supporting statements or attachments that provide additional information about the organizational action.

How to Complete IRS Form 8937

Completing Form 8937 is a straightforward process, but it requires accuracy to ensure that shareholders receive the correct tax information. Below are the key steps to help you complete the form:

1. Part I – General Information:
   In this section, provide details about the entity, such as its name, EIN, and the date the form is being filed. You will also provide a description of the organizational action, such as the stock split or merger that took place.

2. Part II – Organizational Action:
   Enter the details of the specific organizational action, including the type of event (e.g., stock split, spin-off) and the date on which it occurred. Additionally, this section asks for information about how the event impacts the securities held by shareholders.

3. Part III – Impact on Basis of Securities:
   Describe how the action affects the basis of the securities and whether the basis will be adjusted. This part requires you to provide the new basis per share for the securities involved. For example, after a stock split, the number of shares will increase, but the per-share basis will decrease.

4. Part IV – Additional Information:
   This section allows you to provide any other relevant information or explanations regarding the action and how it impacts the securities’ basis. It may also include any calculations, such as adjusted amounts, for tax reporting purposes.

5. Signature and Filing:
   Once the form is complete, the authorized person from the issuing entity must sign the form, certifying that the information is accurate. Form 8937 is filed with the IRS and is also provided to the shareholders who are affected by the organizational action.

Filing Deadline for Form 8937

IRS Form 8937 must be filed by the entity that carried out the organizational action within 45 days of the event. For example, if a merger or stock split occurred on January 1, the form must be filed by February 15. This timeline is crucial, as shareholders depend on this information to correctly adjust the basis of their securities when they file their tax returns.

Common Mistakes to Avoid When Filing Form 8937

1. Incorrect Basis Calculations:
   One of the most common mistakes is miscalculating the adjusted basis of securities after an event. Ensure that you provide accurate calculations to avoid errors for shareholders who rely on the information.

2. Failure to File on Time:
   Failing to file Form 8937 within the required 45-day window can lead to penalties or issues for shareholders, as they won’t have the necessary information to adjust their tax filings.

3. Omitting Required Information:
   Ensure that you complete every section of the form and provide any additional documentation required. Incomplete forms may lead to delays in processing and could lead to penalties.

Conclusion

IRS Form 8937 plays a critical role in reporting organizational actions that affect the basis of securities. Whether your company undergoes a stock split, merger, spin-off, or another corporate action, filing this form ensures that shareholders have the correct information to adjust the tax basis of their investments.

Filing Form 8937 promptly and accurately will help shareholders avoid confusion and potential issues when it comes time to report capital gains or losses on their tax returns. If you’re uncertain about how to properly fill out the form or calculate the adjusted basis, it’s advisable to consult with a tax professional or corporate accountant.