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I have the answers.

First, what really happened in my situation. The broker missed the dividend payments, probably because they were out of cycle, so they made a payment in lieu instead of the qualified dividend it should have been. To correct this they are issuing an additional payment of 33% of the dividend payments to cover both the additional tax from the incorrectly reported payments and the tax on the additional payments. Apparently this is easier than issuing a corrected 1099 and fairly common. The net is I actually come out a little ahead.

Second, there seems to be some significant misunderstanding of when brokers can lend your shares. The federal laws governing this are quite restrictive. There must be a separate agreement unless you bought the shares using a margin loan. Just having a margin account is not sufficient.

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