Spinoffs Create Tax Headache for HOLDRs Investors

I'm an investment adviser who owns many HOLDRs for clients. My clients have recently received distributions and/or spinoffs for three HOLDRs: Nortel (NT Quote) from the Telecom HOLDRs (TTH Quote); Agilent (A Quote) from the Internet Architecture HOLDRs (IAH Quote) and Pharmacia & Upjohn from the Pharmaceuticals (PPH Quote) HOLDRs.

I understand the Nortel piece is taxable as a dividend immediately (according to BCE (BCE Quote), which spun it off). I think the other two spinoffs are not taxable events. But calculating the cost basis adjustments for the pieces now outside the HOLDRs and the adjustment of the cost basis of the HOLDR itself is more than I can take. I've spoken about these events to various CPAs and they are also confused.

Do you have any information that could help my poor soul? I'll tell you one thing, I won't be buying HOLDRs in taxable accounts any longer -- too much of a pain.

-- Stuart Chaussee ...