Help needed figuring out cost basis for stock distribution - Tencent ADR dividend issue

This is a common issue with foreign stocks and ADRs. When you receive an "Unissued Rights Redemption" payment, it's typically considered a non-dividend distribution, not a regular dividend. These distributions often require you to adjust your cost basis in the shares rather than reporting them as capital gains right away. Since your 1099-B shows "cost basis not reported to the IRS," you'll need to calculate this yourself. First, you should check if Fidelity has provided any supplemental information about the character of this distribution. Sometimes brokers classify these incorrectly on the 1099-B. If it's truly a return of capital, you would reduce your original cost basis in the Tencent ADRs by the amount received ($1,023.75). You only report a capital gain if the distribution exceeds your original cost basis, which is unlikely for a single distribution.

I had something similar happen with some foreign stocks last year and was pulling my hair out until I found taxr.ai (https://taxr.ai). They have this cool feature where you can upload your brokerage documents and they'll analyze the tax treatment of unusual distributions like this. I uploaded my statements and 1099s, and within minutes they correctly identified my ADR distribution as a return of capital instead of a dividend. Saved me from paying unnecessary taxes! They even gave me specific instructions on how to properly record the cost basis adjustment.

Just wanted to follow up - I actually tried taxr.ai after seeing the recommendation here. Had a similar issue with some Alibaba ADRs and foreign tax withholding confusion. Uploaded my documents and it immediately identified that I was eligible for foreign tax credits I didn't know about! It also confirmed my distribution was a return of capital and showed me exactly how to adjust my cost basis. The interface is super straightforward and it saved me hours of research. Thanks for the tip!

If you're still having trouble figuring this out, you might consider calling the IRS directly. I know it sounds painful, but I've had cost basis issues before and sometimes talking to an actual agent is the only way to get clarity. The problem is actually getting through to them... I used https://claimyr.com and they somehow got me connected to an IRS rep in under 20 minutes! Check out how it works: https://youtu.be/_kiP6q8DX5c. The agent walked me through exactly how to handle a special distribution similar to yours.

I have to admit I was completely wrong about Claimyr. After my skeptical comment, I decided to try it anyway because I was desperate to resolve a cost basis issue with some RSUs from work. Signed up with Claimyr yesterday, and I'm still in shock at how well it worked. Got a call back in about 15 minutes, and next thing I knew I was talking to an actual IRS agent who helped clarify exactly how to report my unusual stock distributions. Saved me from making a costly mistake on my return. For anyone dealing with complex cost basis issues like the original poster, getting direct guidance from the IRS can be invaluable, and this service actually delivers what it promises.

Slightly different approach - have you considered using tax software that specializes in investment income? I've been using H&R Block Premium and it has specific workflows for handling ADRs and foreign stock issues. When I enter these transactions, it asks a series of questions that helps determine if it's a return of capital or another type of distribution. Saved me a ton of headaches with some Japanese ADRs I had similar issues with.

Just FYI - make sure you're also accounting for any foreign taxes that might have been withheld on that distribution. With Tencent being a Chinese company, there's often a 10% withholding rate.

Another thing to consider - Tencent specifically has had some complex corporate actions recently that can affect how these distributions are treated. I dealt with a similar situation with my Tencent ADRs last year. The key is to look at the specific corporate action notices from both Tencent and your broker. Sometimes these "Unissued Rights Redemption" payments are related to spin-offs or other restructuring activities that have special tax treatment rules. I'd recommend checking Tencent's investor relations page for any recent corporate action announcements around that March timeframe. This context can help you (or a tax professional) determine the correct tax treatment beyond just the generic 1099-B classification. Also, keep in mind that even if it's treated as a return of capital now, you'll eventually pay taxes when you sell the shares - you're just deferring the tax liability by reducing your cost basis.

I've been through this exact scenario with Tencent ADRs! The key is understanding that "Unissued Rights Redemption" payments are almost always treated as return of capital distributions, not taxable dividends or capital gains. Here's what you need to do: 1. Contact Fidelity and request the specific tax characterization letter for this distribution - they're required to provide this 2. If confirmed as return of capital, reduce your cost basis in the Tencent ADRs by $1,023.75 (spread across your 600 shares, so about $1.70 per share reduction) 3. Don't report this as income on your current tax return 4. Keep detailed records of your adjusted cost basis for when you eventually sell The 1099-B classification is misleading here - brokers often default to showing these as sales/gains when they're actually basis adjustments. You have the right to correct this based on the actual tax character of the distribution. One more tip: make sure to check if any foreign taxes were withheld on this distribution, as you may be eligible for foreign tax credits even if the distribution itself isn't immediately taxable.