PIL

Hi, vschoenig.

You'll need more information than that to properly classify that payment!

I don't recall having heard of that "payment-in-lieu of a dividend" description. Is this a public corporation? Is it a US company? Did they send you some documentation and explanation? Did they send you a 1099 of any kind? Is there a website where they might have explained this payment?

Sorry, but there is simply not enough information in your question to allow even a guess at an answer.

RC

This article -

Hi, Tom.

Thanks for that TinyURL. Now I realize what the OP was asking about. And, for others who may also have forgotten, like I did, here's the simplified explanation from that page (part of Motley Fool's cache):

"One of the barriers to a lower dividend tax rate occurs when you loan out your shares of stock to another person who might be selling the stock "short." If you loan out your shares in such a manner, the payments that you actually receive are considered "in lieu" payments and not dividends. The person who holds the shares (the person to whom you loaned your shares) receives the dividend. Then that person makes a payment to you in lieu of the dividend that you missed. And "in lieu" payments don't qualify as dividends received, and therefore don't qualify for the lower tax on dividend income."

In that case, you receive the cash, but it's from the guy who borrowed your shares, not from the company treasury. So, in your hands, it's not a dividend at all, so the qualifying or non-qualifying question is moot. You would report it simply as "other income", and fully taxable. But the writer of that page offers hope:

"IRS Notice 2003-67 addresses this situation. It basically states that brokers will be required to report both regular dividends and "in lieu" payments on the 1099-DIV form for 2003. The dividends will qualify for the lower tax rates, the "in lieu" payments will not. But this notice also states that if you receive a statement from the broker indicating that all of your dividends are qualifying, you can rely on this statement when you prepare your 2003 tax return."

So, as Tom indicates, at least a part of my original post is still valid: What does your 1099-DIV say?

I've not researched this question at all (obviously), so be sure to check with your own CPA to see if those 2003 rules still apply to your 2006 return.

RC

Payments in lieu of dividends are reported on a 1099-MISC, box 8, not a

Ira Smilovitz

Hi, Ira.

Thanks for the correction. That would seem to emphasize that these payments are NOT dividends in the hands of the stockholder who receives them.

RC