SCHWAB and CRP

[katytrader]

September's Monthly Statement from the Schwab brokerage showed that it treated the CRP as some sort of liquidation and lumped it in with Dividends and Interest rather than a capital transaction.  Fidelity and TDAmeritrade treated it as a sale against a zero-cost asset.  Implication for US taxpayer is that Schwab is likely to treat CRP as a dividend or interest payment on the 1099 sent to IRS.

My call to Schwab elicited a response of kicking issue back to tax group and/or others for review.

Did any Schwab clients in SHU have their CRP payment treated as a sale of an asset?

katytrader

Katy:

I've looked into this and I believe that the CRP payment should be treated as a 'cash liquidation distribution'. Liquidating distributions (either cash or noncash) are a form of a return of capital. Any liquidating distribution you receive is not taxable to you until you recover the basis of your stock. After the basis of your stock is reduced to zero, you must report the liquidating distribution as a capital gain [long-term]. Thus, the CRP is only taxable to the extent that it exceeds one's cost basis and is only taxable as a long-term capital gain, and not as a dividend, despite being reported on a 1099-DIV. Schwab should report this in BOX 8 of the 1099-DIV as a 'cash liquidation distribution' for a liquidating corporation.

2126, thanks for having a look at this.  Schwab right now agrees that the liquidated distribution should be reported in Box 8 of the 1099-DIV.  Perhaps just to mollify me, they say that they will look at the info I sent from IOC's Management Information Circular (pp. 95-97) and that they may get more information before the 1099 is prepared.  From where they will get more information is a mystery to me.  On my gain/loss page the basis is given as NA.   Fidelity and Ameritrade show the CRP payments to be gains with the cost basis of zero.  There is no indication that these firms will do anything other than report the payment as Proceeds from Broker and Barter Exchange Transactions on 1099-B.  All of the firms thus far have applied my entire IOC basis to the value of the XOM shares.  Earlier in the year they were using a basis of $3.72 or so for the CRP, but that disappeared from their statements after a few months.   It looks like Northoil was dead right in saying it made more sense to simply sell IOC at $50 rather than deal with XOM and the CRP.

katytrader