Delphi Automotive Systems Spin-Off
Information Regarding U.S. Federal Income Tax Basis
The following information is provided to assist you in determining your basis in your GM $1-2/3 common stock and your Delphi common stock for U.S. Federal income tax purposes as a result of the Delphi Spin-Off, but is not intended as tax advice. You should consult your tax advisor as to the particular basis consequences to you of the Delphi Spin-Off under U.S. Federal, state, local and foreign tax laws.
Generally, the U.S. Federal income tax law requires that your tax basis in the GM $1-2/3 common stock you held immediately before the Delphi Spin-Off be allocated between your GM $1-2/3 common stock and the Delphi common stock you received in the Delphi Spin-Off. This allocation is based on the relative fair market value immediately after the Delphi Spin-Off of your GM $1-2/3 common stock and the Delphi common stock you received. The tax basis in your GM $1-2/3 common stock after the Delphi Spin-Off will generally be equal to the tax basis of your stock immediately before the Delphi Spin-Off, reduced by the amount of tax basis allocated to your Delphi common stock. In other words, your total tax basis does not change; rather, a portion of the tax basis you had in your GM stock before the Delphi Spin-Off is allocated to the Delphi stock you received in the Delphi Spin-Off.
Federal tax law does not specifically identify how you should determine the fair market value of your GM $1-2/3 common stock and the Delphi common stock that you received. There are arguably three alternative methods for determining the fair market value: (i) the average of the high and low trading prices of such stocks on May 28 (the day on which the Delphi Spin-Off occurred); (ii) the stocks' opening trading price on May 28; and (iii) the stocks' closing trading price on May 28. In certain IRS private rulings, the IRS has recognized the use of the average of the high and low trading prices as an acceptable measure of fair market value.
You and your tax advisor may find the information in the following table useful in connection with the allocation of your tax basis in your GM $1-2/3 common stock between your Delphi common stock and your GM $1-2/3 common stock.
The Delphi Spin-Off occurred as of the opening of business on May 28, 1999. Under the distribution ratio for the Delphi Spin-Off, GM $1-2/3 stockholders received 0.69893 shares of Delphi common stock for each share of GM $1-2/3 common stock. The following table shows New York Stock Exchange composite prices for May 28, 1999 and the basis allocation percentage under each of the alternative methods described above.
| Stock | High | Low | High-Low Average Price Allocation % | Opening Price Allocation % |
Closing Price Allocation % |
|||
| GM $1-2/3 common |
$72.1875 | $68.8750 | $70.5313 | 83.481% | $71.0000 | 83.422% | $69.0000 | 83.417% |
| Delphi common | $20.3125 | $19.6250 | $ 19.9688 x 0.69893 $ 13.9568 |
16.519% | $20.1875 x0.69893 $14.1096 |
16.578% | $19.6250 x0.69893 $13.7165 |
16.583% |
The basis allocation percentages can be used to allocate your basis in the GM $1-2/3 common stock you held immediately before the Delphi Spin-Off between your GM $1-2/3 common stock and the Delphi stock you received in the Delphi Spin-Off, including any fractional share of Delphi stock sold on your behalf.
The tax law does not clearly address how tax basis should be allocated by stockholders who own two or more blocks of stock. For more information about how to determine the tax basis in your stock, see pages 3-4 of the Information Statement that you received prior to the Delphi Spin-Off. We encourage you to consult with your own tax advisor regarding the tax basis consequences of the Delphi Spin-Off.
Examples of tax basis allocation (GM $1-2/3 and Delphi Common Stock)
