How to show net assets on first 990 for a nonprofit spun off from another?

[ScottSpringerCPA]

A mid-sized nonprofit had a specific program for many years that became a separate 501(c)(3) nonprofit effective 1/1/2018. Prior to the separation, this program was tracked as a separate fund with a separate statement of financial position. The new, smaller organization kept all of the assets and liabilities that were part of that fund from the larger organization.

They now want to prepare their first 990-EZ for calendar year 2018. Not sure how to record net assets for 2018.

For Line 19 "Net assets or fund balances at beginning of year", I assume this should be zero because 2018 is the new organization's first official year of existence. The other alternative would be to enter the fund balance as of 12/31/17, but I don't think that's right. Can anyone confirm?

If line 19 is zero, the income less expense for the year will not equal the ending fund balance. I see two options here. Does anyone know which is correct?
1. On Line 20 "Other changes in net assets or fund balances (explain in Schedule O)", enter the fund balance from when it was part of the larger org, and explain in Schedule O that the assets and liabilities were transferred to this new org.
OR
2. Include the net amount (assets minus liabilities) transferred to the new org in income for 2018. I think this distorts the true income for 2018 and may be misleading to readers. Also, including this as income would push them over the threshold for filing 990-EZ. Still, it might be the correct answer, which is why I'm asking here.

Thanks in advance for any help you can provide!

[Uncle Sam]

My suggestion would be to actually have values for 1/1 because they previously existed in a different form and were transferred over into a new entity.
If you can send me a PM of your fax number - I'll send you a listing of IRS Chief Counsel Code and Subject Matter Directory - that lists Chief Counsel contact information for various types of 501(c)(3) entities