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On my 1099-Div, it is showing (hypothetical numbers here):

Total Ordinary Dividends = 1,000
Qualified Dividends = 1,000

My actual dividends paid were 1,200, which included

Not Qualified Return on Capital = 150

Not Qualified Exempt from Withholding = 50.

Is my 1099-Div correct? I think I understand the $150 Return of Capital should not be considered a dividend. I am not sure why the $50 is not included as a dividend, and if not considered a dividend, where and when do I report this?

Thank you for your help.

Ken
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To add to my previous post, these terms are from Interactive Brokers. My 1099-Div is showing Non-dividend Distributions equal to the $150. I am unclear how to handle the $50. IB did not include it as dividends or show it anywhere else on the 1099-Div.
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Not Qualified Return on Capital = 150

Not Qualified Exempt from Withholding = 50.

Is my 1099-Div correct? I think I understand the $150 Return of Capital should not be considered a dividend. I am not sure why the $50 is not included as a dividend, and if not considered a dividend, where and when do I report this?


The $150 Return of Capital (ROC) is not a dividend, but it does reduce your cost basis in the holding. It should be reported in Box 3 of your 1099-DIV.

I have not seen "Not Qualified Exempt from Withholding" terminology used previously. (Note - One brokerage may use different terminology to describe a payment than another does, especially if there's not a specific spot on the 1099-DIV for it.) However, I am wondering if it is from a partnership and you need to have a K-1 to report it correctly. Is there any additional detail provided in the details pages that accompanied the 1099-DIV? What security is it that generated this payment?

AJ
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Hi AJ:

The stock is PAC. Both the Return of Capital and Exempt from Withholding are on this same stock. However, only the Return of Capital is shown in the 1099-Div. The Exempt from Withholding is not shown anywhere and is not included as Ordinary Dividends.

I also have not seen Exempt from Withholding before from previous years owing PAC stock. Every time it's been Return of Capital. I first thought it was an error and both should be Return of Capital (since that is what I have seen in previous years) but as I stated above, this amount is not included in the 1099-Div under non-dividend distribution.

Since it's not included as ordinary dividends, should I just assume the $50 as return of capital, consistent to the other $150 amount on the same stock?

Thank you, Ken
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Since it's not included as ordinary dividends, should I just assume the $50 as return of capital, consistent to the other $150 amount on the same stock?

That's a head-scratcher. I looked at the company's website, and didn't find anything about the dividend allocation. You might want to call IB and see if they have any additional information about it, but since it's not in the ordinary dividends, you don't want to include it as part of those on your return. But the fact that they didn't include it in the Non-Dividend distribution makes me think that it's not really ROC, either.

Maybe someone else will chime in....

AJ
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The stock is PAC.

The full name of the company is Grupo Aeroportuario del Pacífico, S.A.B. de C.V. They operate several airports in Mexico.

Clearly, you're dealing with a foreign company. That introduces some potential complications.

If I were to hazard a guess, the "exempt from withholding" might be referring to exempt from foreign tax withholding. But that's only a guess.

--Peter
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Ken
I agree with AJ that there is no such box on the 1099-DIV titled "Not Qualified Exempt from Withholding". My guess is this is IB's own language for something. But all you really need to be concerned with is what numbers are in which boxes. If you're using standard tax prep software, such as TurboTax, it will figure out everything for you. If you're doing your return manually, I'd ignore anything on a letter from IB and transfer the numbers from the boxes to their appropriate spots on your tax return. What a brokerage says on the side in their own language is of no importance.

I'm just being curious, but if the ordinary dividend is 100% Qualified Dividend and it includes an amount in box 3, this would be an unusual condition. The only 100% qualified dividend payers will be C-Corps and LLC's organized as corporations, but it is very unusual for these companies to pay Return of Capital. Not impossible, just unusual. Or is this for a closed-end fund, which could explain it.

In any event, you may be interested in my article on what's the numbers on the 1099-DIV mean...

https://seekingalpha.com/article/4250101-understanding-1099-...

BruceM
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Hi Bruce:

The 2 amounts are non-qualified. The $150 is in Box 3. The $50 is nowhere. FYI, there were 4 dividend distributions from PAC last year. Two were qualified ordinary dividends. The other two were the $150 and the $50 above.

Thank you, Ken
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What a brokerage says on the side in their own language is of no importance.

I've got to strongly disagree with that.

There is often information NOT included on a 1099 that is very important. One easy example is the 1099B. Non-covered sales will only show the sales proceeds and not the cost of the security you sold. If you don't add that cost in, you will pay tax on the whole sales proceeds and not just on the gain or loss. Many brokers include that information in supplemental information after the official 1099s.

Another common example (and one that might be germane to this thread) is the details necessary to calculate the foreign tax credit. To calculate that credit, you need to know the amount of foreign dividends and interest. That information is not on the 1099 - you have to dig into the supplemental information behind the 1099 to get that.

Another is at the state level. Many states allow interest on in-state municipal bonds to be tax free. But the 1099INT only shows the interest which is tax-free for federal purposes. That interest includes municipal bonds from any state, not just the resident state. Again, you need the supplemental information many brokers provide to figure out how much of the municipal bond interest is tax-free to the state and how much is taxable.

If you're using standard tax prep software, such as TurboTax, it will figure out everything for you.

At this point, you should now understand why I roll my eyes at comments like this. TurboTax - and it's competitors - are fine tools for filling out tax forms. But they don't substitute for thinking and knowledge. They don't figure out anything. They plug numbers into forms based on the input they're given. If they get garbage input, they give garbage output. If you don't understand where some particular item should be reported, TT isn't going to figure that out for you. It's going to report it wherever you tell it to report it.

And that is where I need to compliment the OP in this thread. He (or She??) doesn't know where something should be reported, or if it should be reported. So they're trying to figure that out. They are not blindly trusting software, but trying to learn more. I'm just sorry I can't help them further without seeing the actual information they're looking at. (Something entirely inappropriate to do on a public message board.)

--Peter
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There is often information NOT included on a 1099 that is very important.

Absolutely....lots of it on input forms too numerous to list here. But the question wasn't about those forms, it was about the 1099-DIV. The 1099-B, K-1, W2 and 1099-MISC, to name a few, do not address dividends...that's what the 1099-DIV is for.

For qualified foreign dividends, those dividend amounts are included in the various boxes of the 1099-DIV in compliance with tax treaties with the US, while box 7 gives you the foreign tax paid, if any. If you're speaking of foreign stock that are not ADRs but are owned off-shore, you cannot, on your own, try to determine what part of their distribution is qualified, what is Non-Dividend or any other status as the company's country will not use similar reporting criteria required of US or Foreign ADR dividends. Not sure, but I'd imagine the IRS would require this be included as 'other' income.

State reporting is a completely separate issue and, again, that was not the question.

And I doubt many will understand the mechanism by which tax prep software processes raw input data to its final amount entered on the final return. Do you methodically work through the qualified dividend worksheet or the Social Security ordinary income inclusion worksheet? That's what the software is for. If you don't trust its doing the calculations correctly, then don't use it and do your return manually.

Read carefully.

BruceM
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Sorry, Bruce, but I’ve got to pull rank on you on this one. I’m a tax professional and I have looked at thousands of brokerage 1099s over my 30 plus years in the business.

I don’t think you fully understood my reply or the issues I raised.

A 1099 from a broker is often insufficient to correctly prepare a tax return. The supplemental information included with most brokerage 1099 packages provides important information that is not included on any 1099.

—Peter
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A 1099 from a broker is often insufficient to correctly prepare a tax return.

Just to be perfectly clear, I should have said:

A 1099 from a broker is often insufficient to correctly report the activity at that brokerage on your tax return.

And to be even clearer, I'm talking about more than just K-1s that might result from investing in limited partnerships in your brokerage account. (Those are another whole soapbox, which I will refrain from climbing onto for now.)

--Peter
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Well, you can certainly change what is reported on the 1099-DIV if you wish, but IRS's copy will not be changed, so you'll have an inconsistency. If the 1099-DIV is inaccurate, then the holder needs to go back to the originator to get it corrected.

And vague statements like "A 1099 from a broker is often insufficient..." really doesn't mean anything. If you have specific examples, show them and cite the Pub or IRC. Otherwise, you're just making noise and being annoying.

BruceM
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Well, you can certainly change what is reported on the 1099-DIV if you wish ...

Where did I say to change what was reported on the 1099-DIV? I did not.

And vague statements like "A 1099 from a broker is often insufficient..." really doesn't mean anything.

It means exactly what I said. A 1099 from a broker not sufficient. You need more info than what is reported on a 1099-DIV in some situations that are not uncommon. Ditto for a 1099B. And a 1099-INT.

If you have specific examples, show them and cite the Pub or IRC.

I provided several examples up-thread. Try reading those.

Otherwise, you're just making noise and being annoying.

Well, one of us is noisy and annoying. My vote is for the person who isn't interested in learning or understanding what has been posted. I don't think it's me. Feel free to respond or not. You may have the last word, as I won't be reading any further posts from you.

--Peter
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And vague statements like "A 1099 from a broker is often insufficient..." really doesn't mean anything. If you have specific examples, show them and cite the Pub or IRC. Otherwise, you're just making noise and being annoying.

Let's make this clearer. A 1099-DIV from a broker can be insufficient to prepare a correct return. Assume a single taxpayer with a substantial brokerage account who receives a 1099-DIV with the following entries:

1a) Ord divs: $20000
1b) Qual divs: #18000
7) Foreign tax: $400
9) Foreign country: various

You do not have enough information to prepare an accurate return. The foreign tax paid is >$300, so Form 1116 is required. In order to complete Form 1116, you need to know how much of the Box 1a and 1b amounts are foreign sourced. That information is not part of the 1099-DIV, but will be in the supplemental statements.

No noise and not annoying... informative.

Ira
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