On 6/30/2007, Morgan Stanley (MS) issued spinoff shares in Discover Financial Services (DFS). This was a tax-free spinoff and part of your basis in Morgan Stanley must be allocated to DFS.
Shareholders of Morgan Stanley received one share of Discover Financial Services for each two shares of Morgan Stanley, for a spinoff ratio of .5 DFS per share of MS.
Using the average trading price method for the first regular trading day, the following percentages should be applied to your original cost basis in Morgan Stanley:
Morgan Stanley (MS) 83.51% Discover Financial Services 16.49%
Alternate methods of determining relative market value are also allowed, such as using the closing price.
Note that your Morgan Stanley shares could have been either purchased directly or received in a prior spinoff from Sears.
Your holding period (purchase date) for DFS is the date you bought the Morgan Stanley shares, if you purchased the shares outright. If you received your Morgan Stanley shares in a spinoff from Sears, your purchase date for DFS is the date you bought the Sears stock.
Use our handy spinoff calculator to compute your new cost basis and the gain or loss on any "cash in lieu" of fractional shares payment. Just click on the image of the spinner to the right and then select "Discover Financial Services" from the drop-down menu. Many fields will be pre-filled for you. Simply add your own cost basis information for Morgan Stanley.
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Information provided is intended solely for U.S. individual cash-basis taxpayers and is believed to be accurate for most cases. Always consult your personal tax advisor about your own situation. Suggestions are most welcome. Please e-mail webmaster @ costbasis.com or write to us at P O Box 11022, Chicago IL 60611 with your comments.