January 9, 2012 - List Raises Concerns About Issuer Compliance With Cost Basis Reporting Law Requirements and Unexpected Capital Gains

Wolters Kluwer Financial Services has released its annual Top 10 Corporate Actions, a list of the most challenging corporate actions from the past year.

The tax and legal experts at Capital Changes, a part of Wolters Kluwer Financial Services that provides corporate action reporting, tax information and analysis, compile the annual listing to alert taxpayers and their financial and tax advisors to corporate actions that have complex or unusual tax consequences.

A number of key issues and trends were spotted in observing this year’s list, including a large number of spin-offs and rights offerings.

“The increase in spin-offs may purely be cyclical, as companies go from an increase in merger activity to more divestments that unlock shareholder value in separate businesses,” said John Kareken, senior tax analyst at Wolters Kluwer Financial Services. “On the other hand, the number and complexity of corporate events, especially rights offerings, may indicate continued challenges resulting from the 2008 financial crisis, as companies look for ways to raise capital and restructure, or the need to reconfigure their businesses to meet current economic conditions.”

Additionally, the list reveals challenges that may result from new requirements of the cost basis reporting law, which went into effect in 2011. The law requires companies engaging in a corporate action that has a quantitative effect on basis to report the event in an “issuer statement.” Issuers have the option of posting this statement on their company website.

“It’s worth noting that, of the top 10 corporate actions for 2011, so far only three companies have provided issuer statements to explain the effect on basis,” said Richard Ryndak, senior product manager for Capital Changes at Wolters Kluwer Financial Services. “While issuers still have until Jan. 17, 2012 to satisfy this reporting requirement, brokers and other industry professionals may be rightly concerned about when and how issuers will provide this needed information in order to meet their own requirements under the cost basis law.”

On a more technical note, 2011 saw several unusual corporate actions that might be mistaken by investors as nontaxable, but that are actually taxable events. These events may cause some taxpayers to face unexpected 2011 gains on their returns this 2012 tax season.

The Top 10 List for 2011 was selected based on voting by Capital Changes subscribers and corporate actions professionals, as well as other criteria, such as how widely held the affected security was and how complex the tax issues were. The resulting analysis shows the following companies’ corporate actions were especially noteworthy:

Top U.S. Transactions

1. General Motors (Bankruptcy)
2. American International Group (Warrant Distribution)
3. Motorola (Spin-off of Motorola Mobility Holdings)
4. Genzyme Corp. (Merger Into Sanofi)
5. Alkermes, Inc. (Merger Into Irish Holding Company)

Top International Transactions

1. Alcon (Merger Into Novartis)
2. Western Copper Corp. (Plan of Arrangement)
3. Brookfield Office Properties (Rights Offering)
4. New Flyer Industries (Rights Offering)
5. Telecom Corporation of New Zealand (Demerger of Chorus Ltd.)