I got a payment in lieu of dividend for tax free closed end fund shares. Will this be accounted for correctly on my year end IB IRS statement?
Here is a detailed explanation by E*Trade... It's not exactly the same: https://us.etrade.com/e/t/estation/help?id=1502010000
Well at least E*Trade has some info (tho they don't address div's that are supposed to be tax free) IB has no info on their web site that I can locate.
Found this in a google search if anyone is interested. http://www.irs.gov/irb/2004-03_IRB/ar08.html Explanation of Provisions Section 6045(a) of the Internal Revenue Code (Code) provides that every person doing business as a broker shall, when required by the Secretary, make a return showing the name and address of each customer, together with information as required by forms and regulations. Section 6045(d) provides that brokers who transfer a customerâs securities for use in a short sale or similar transaction, and receive payments in lieu of a dividend, tax-exempt interest, or other items set forth in regulations (substitute payments), must furnish the customer with a written statement identifying the payment as being in lieu of the dividend, tax-exempt interest, or other item. This section authorizes the Secretary to prescribe regulations that require brokers to file information returns that include the information contained in the written statement. Section 1.6045-2 of the existing Income Tax Regulations provides rules for reporting substitute payments under section 6045(d). In general, §1.6045-2(a)(3)(i) of the existing regulations excludes payments in lieu of dividends received by a broker on behalf of an individual from the broker reporting requirements of section 6045(d). Section 1.6045-2(a)(3)(ii) of the existing regulations requires reporting for certain dividend substitute payments received by a broker on behalf of an individual, such as payments in lieu of exempt interest dividends distributed by regulated investment companies. These regulations contain amendments to the existing regulations to require reporting under section 6045(d) for payments in lieu of dividends made to individuals on or after January 1, 2003. For taxable years beginning on or after January 1, 2003, brokers must use Form 1099-MISC, âMiscellaneous Incomeâ, to report substitute payments to individuals, including payments in lieu of dividends.
It will be accounted for correctly. The correct method means it will be taxable to you. I assume you bought the closed end fund because it was tax free. I'd suggest you contact IB about the problem. See this thread: http://www.elitetrader.com/vb/showthread.php?s=&threadid=99531 Jack
I sympathize with the OP... IB takes an unusually hard line on this. My PID went from maybe 2% to 10% when I switched to IB... And this year IB has pushed the PID to about 30% of all dividends paid/received. That's why IB has to be viewed holistically... Because the short position interest they pay... Plus what has become (in the last year) an outstanding Stock Loan department... Far outweights the PID effect on dividend taxation... For >>> 99% of their accounts.
I put in a trouble ticket on this and finally got a response today. They basically said "tough luck" but in allot more words.