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I was an IBM shareholder that received Kyndryl shares on November 3. How do I calculate my basis in the Kyndryl shares that I received?

Kyndryl Holdings, Inc. (“Kyndryl”) was recently spun off from International Business Machines Corporation (“IBM”), with IBM distributing 80.1% of its Kyndryl shares to IBM shareholders on November 3, 2021 (the “Distribution”). IBM shareholders of record as of October 25, 2021, received one share of Kyndryl common stock for every five shares of IBM common stock held on that date.

Generally, for U.S. federal income tax purposes, IBM shareholders are required to allocate the aggregate tax basis in their IBM shares held immediately prior to the Distribution among the Kyndryl shares received in the Distribution and their IBM shares held immediately after the Distribution. This allocation should be made in proportion to the relative fair market value of the IBM shares and Kyndryl shares held at the time of Distribution. Shareholders that acquired IBM shares at different times or at different prices should calculate their tax basis in each block of IBM shares and then allocate a portion of that tax basis to the shares of Kyndryl received with respect thereto. Note that U.S. federal income tax law does not specifically prescribe how you should determine the fair market values of the IBM and Kyndryl shares for purposes of allocating tax basis and there are multiple ways of computing this.

One possible approach is to utilize the New York Stock Exchange closing price on November 4, 2021 (the first trading day immediately after the Distribution), for IBM common stock ($120.85 per share) and for Kyndryl common stock ($26.38 per share) as the fair market value. At a distribution rate of 1:5, the weighted value of the distribution would be $5.28 ($26.38 / 5) worth of Kyndryl stock for every share of IBM stock. Therefore, you would allocate 4.18% ($5.28 / ($120.85 + $5.28)) of your tax basis in your IBM shares immediately prior to the Distribution to the Kyndryl shares received in the distribution and allocate 95.82% ($120.85 / ($120.85 + $5.28)) of your tax basis to your IBM shares. As this is just one of many approaches, you should consult with your own tax advisor to assess appropriate methodologies in this regard.

IRS Form 8937, Report of Organizational Actions Affecting Basis of Securities, provides more information about the basis consequences of the Distribution and detailed information about how to allocate your cost basis between the IBM and Kyndryl shares. You can access IRS Form 8937 here.

The information in this statement does not constitute tax advice. It does not purport to be complete or to describe the consequences that may apply to all or certain categories of shareholders. You should consult your tax advisor regarding the particular consequences of the Distribution to you, including the calculation of the aggregate tax basis in your shares and the allocation of that basis to your Kyndryl shares.