How to Calculate Cost Basis for Stock in Spin-Off Company (IBM/KD)

This is a common issue with spin-offs! You're on the right track, but let me clarify a few things. When a spin-off occurs, you need to allocate the original cost basis between the parent company (IBM) and the spun-off company (KD) based on their relative fair market values immediately after the spin-off. The 96%/4% split you found on Kyndryl's website is their official allocation ratio, which is determined based on the companies' relative values right after the distribution. The key thing to understand is that you're not creating a new purchase - you're splitting your original cost basis. So if you paid $1,200 total for 10 IBM shares, after the spin-off you would allocate $1,152 (96%) to your 10 IBM shares and $48 (4%) to your 2 KD shares. The purchase date remains the same as your original IBM purchase. As for the discrepancy with Fidelity, this could be happening for a few reasons. Sometimes brokers use different valuation methods, especially if they didn't receive the official allocation information. They might be using the fair market value of KD on the distribution date as the cost basis instead of the allocated portion of your original IBM cost basis.

After struggling with the exact same issue last year, I found an amazing service called taxr.ai at https://taxr.ai that totally saved me from this headache. I was in a similar situation with some GE spin-offs that had moved between brokerages and had missing cost basis info. The tool analyzed my statements and transaction history, then calculated the proper cost basis allocation for all my spin-off shares. What impressed me was how it handled the multi-tier transactions that happened when shares moved between brokerages - something I couldn't figure out myself. For IBM/KD specifically, it correctly applied the 96%/4% allocation ratio but also accounted for some nuances in how fractional shares were handled that I would have missed. The reports it generated were accepted by my broker without any pushback.

I just wanted to follow up about my experience with taxr.ai after trying it based on the recommendation here. It was seriously impressive! I uploaded what statements I had, which honestly wasn't much, and their system filled in the blanks. For my IBM/KD situation, not only did they correctly apply the allocation ratio, but they caught something I would have completely missed - apparently some of my IBM shares had been purchased through a dividend reinvestment plan which affects the cost basis calculation differently. The detailed report showed exactly which KD shares came from which IBM lots, making it crystal clear. Fidelity accepted the documentation without question and updated all my cost basis information. This was such a relief because I was planning to sell some shares this year and was worried about reporting incorrect information to the IRS.

I had a similar issue calling the IRS to get clarification on a spin-off question, but could never get through until I found Claimyr. Their service at https://claimyr.com actually got me connected to an IRS representative in about 15 minutes when I'd been trying for weeks on my own. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I was skeptical at first, but after the IRS agent confirmed my understanding of the cost basis allocation for a similar spin-off situation (mine was with Dow/DuPont), I was able to confidently update my records. The IRS agent even walked me through the correct way to report it on my tax forms, which was incredibly helpful. What surprised me most was how knowledgeable the IRS representative was once I actually got to speak with one. They explained that brokerages often struggle with spin-off cost basis calculations because they don't always receive the complete transaction history.

I need to admit I was completely wrong about Claimyr. After posting my skeptical comment, I decided to try it myself since I had a complicated question about a REIT spin-off that I couldn't get answered anywhere else. The service actually worked exactly as described. After months of failing to reach anyone at the IRS, I got a call back within 20 minutes connecting me to an actual IRS representative. The agent was able to confirm the proper allocation method for my spin-off basis question and even sent me documentation to support it. What I appreciated most was being able to get an official answer directly from the IRS rather than relying on forum advice or my own interpretation. For something as specific as spin-off cost basis calculations, having that authoritative guidance gives me confidence that my tax return will be correct.

Have you checked if IBM or Kyndryl filed a Form 8937 with the IRS? Companies are required to file this form for corporate actions that affect basis, and it should have the official allocation ratio. I had a similar issue with a Pfizer spin-off and found their Form 8937 posted on their investor relations website. Sometimes these forms include detailed examples of how to calculate the allocation for specific share amounts. The form should also show the fair market values they used to determine the allocation percentages, which could help explain why Fidelity's numbers are different.

For anyone dealing with spin-offs in the future, I highly recommend keeping a spreadsheet that tracks all your stock purchases with dates and prices. When spin-offs happen, immediately document the allocation ratios announced by the companies. I learned this the hard way after going through THREE different spin-offs with AT&T. Their Warner Media spinoff to Discovery was especially complicated with the reverse stock split component. Also, don't wait years to update your cost basis like I did! The longer you wait, the harder it is to find the documentation, especially if companies get acquired or change names after the spin-off.

I went through this exact same situation with IBM/KD last year! You're absolutely correct about the 96%/4% allocation - that's the official ratio IBM and Kyndryl established for the spin-off. The reason Fidelity's KD cost basis is so much higher is likely because they used the market price of KD shares on the distribution date (around $30-35) instead of properly allocating your original IBM cost basis. This is a super common mistake brokers make with spin-offs. Here's what worked for me: I called Fidelity's cost basis department directly and provided them with IBM's official spin-off documentation (you can find it in their 2021 investor materials). I also prepared a simple spreadsheet showing my original IBM purchases and how the 96%/4% split should be applied to each lot. The key is being persistent - it took two phone calls and about 3 weeks, but they eventually corrected everything. Make sure to emphasize that this is an "allocation of original cost basis" not a "new purchase at market value." Once they understand the distinction, most reps can process the correction. One tip: if the first rep doesn't seem to understand spin-off cost basis rules, politely ask to speak with someone in their corporate actions department. They deal with this stuff regularly and know exactly what needs to be done.

I dealt with a very similar IBM/KD cost basis issue at TD Ameritrade earlier this year. What helped me was understanding that brokerages often receive incomplete or incorrect corporate action data from their clearing firms, especially for complex spin-offs like this one. In addition to the great advice already shared, I'd suggest checking your 1099-B forms from 2021 and 2022. Sometimes brokerages report the spin-off distribution on these forms, and you can see exactly what method they used for the cost basis calculation. This can give you ammunition when calling to request corrections. Also, keep in mind that even after Fidelity corrects your cost basis, you should double-check that they've properly assigned the acquisition dates. The KD shares should have the same acquisition dates as your original IBM purchases, not the spin-off date. This is crucial for determining long-term vs short-term capital gains treatment when you eventually sell. One last tip - if you're planning to sell any of these shares soon, consider waiting until after the cost basis correction is complete. Selling with incorrect basis information creates unnecessary complications on your tax return, even if you report the correct amounts.

I went through a similar spin-off cost basis issue with another company recently, and one thing that really helped me was creating a detailed timeline of all my transactions before contacting the brokerage. What I did was list out each IBM purchase lot with the original date, number of shares, and price paid. Then I calculated what the post-spin-off allocations should look like for both IBM and KD shares using the 96%/4% ratio. Having this organized breakdown made it much easier to explain to the customer service rep exactly what needed to be corrected. I also found it helpful to reference IRS Publication 550, which covers the tax treatment of corporate distributions and spin-offs. It specifically mentions that when you receive stock in a spin-off, your basis in the original stock must be allocated between the original and new stock based on their relative fair market values. This gives you some official tax code backing when explaining why the allocation method is required. One other thing to consider - if you have a significant amount of money involved, you might want to consult with a tax professional who specializes in investment taxation. They can help ensure you're handling everything correctly and may have relationships with brokerage cost basis departments that can speed up the correction process. The good news is that once you get this sorted out properly, similar spin-offs in the future will be much easier to handle since you'll know exactly what to look for and how to address any discrepancies right away.

I just wanted to add another perspective on this IBM/KD spin-off cost basis issue. I work as a CPA and see this problem frequently with clients who have spin-off holdings across different brokerages. One thing that hasn't been mentioned yet is that you should also verify how Fidelity is handling any fractional shares that may have resulted from the 5:1 ratio. If you owned a number of IBM shares that wasn't perfectly divisible by 5, you might have received cash in lieu of fractional KD shares. This cash payment should be treated as a sale of a portion of your IBM holdings, not as dividend income. For example, if you owned 23 IBM shares, you would have received 4 full KD shares (from 20 IBM shares) plus cash for the fractional 0.6 KD share (from the remaining 3 IBM shares). The cost basis allocation and tax treatment for that fractional portion is different and often gets overlooked. Also, I'd strongly recommend keeping copies of all the documentation from IBM's investor relations website about the spin-off. Companies sometimes reorganize their websites and these documents can become harder to find years later. Having your own copies will be invaluable if you need to make corrections in the future or if the IRS ever has questions about your cost basis calculations. The advice about being persistent with Fidelity is spot-on. In my experience, most brokerages will make the corrections once they understand what's needed, but it often takes multiple conversations to get to someone who really understands spin-off cost basis rules.

I've been following this thread closely since I'm dealing with a similar situation with some Disney/ESPN spin-off shares, and the advice here has been incredibly helpful! One thing I wanted to add that might save others some time - if you're going to call Fidelity's cost basis department, try calling early in the morning (around 8 AM EST) or late in the afternoon (after 4 PM EST). I've found that the wait times are significantly shorter during these windows, and you're more likely to get connected to someone who actually understands corporate actions rather than a general customer service rep. Also, when you do get through, immediately ask if they can see any "corporate action notifications" or "reorganization events" in your account related to the IBM/KD spin-off. Sometimes the correct allocation information is already in their system but wasn't properly applied to your cost basis. If that's the case, the correction might be much faster than having to submit all the documentation. The point about checking your 1099-B forms is brilliant - I wish I had thought of that earlier. It really does help you understand exactly what method your broker used and gives you concrete evidence of where the discrepancy occurred. Thanks to everyone who shared their experiences with this. It's frustrating when brokerages get these calculations wrong, but at least there's a clear path forward to get them corrected!

One additional resource that might be helpful is the SEC's EDGAR database. You can search for IBM's Form 8-K filings from late 2021 which should contain the official details about the Kyndryl spin-off, including the exact distribution ratio and valuation methods used. I had a similar issue with a Verizon/Frontier spin-off a few years ago, and finding the original SEC filing gave me the definitive documentation I needed to convince my broker to make the corrections. The Form 8-K will typically include a section called "Material Agreement" or "Other Events" that describes the distribution terms in detail. Also, if you're still having trouble after trying all the excellent suggestions here, consider filing a complaint with FINRA if Fidelity refuses to correct obviously incorrect cost basis information. Brokers are required to maintain accurate records, and persistent refusal to fix clear errors can sometimes prompt faster resolution when regulatory pressure is involved. The key is being prepared with multiple sources of official documentation - the Kyndryl website allocation info, IBM's SEC filings, and any IRS forms the companies filed. Having that comprehensive paper trail makes it very difficult for a brokerage to claim the correction isn't warranted.