I wonder whether IOFIX informs brokerages like Fidelity or TD that in 2020 about half of its distributions were not dividends but return of capital (ROC)? When I talked to IOFIX and Fidelity, they said that I should not worry and everything will be properly mentioned in 1099, but I have heard from a friend with an account at TD that this may not be the case.
So I wonder whether anybody received 1099 correctly describing dividends and ROC in the distributions of IOFIX? Any other related experience/comments?
Comments
Fidelity handled everything well. It reduced the amount of divs (box 1a) on the 1099 by the ROC amount and reported the ROC in box 3. To my delight it correctly prorated the ROC between the shares sold and the remaining shares and adjusted cost bases of each lot of shares accordingly.
So at least on the Fidelity end, they know what they're doing. They even provided the 1099 on Feb 13th, two days before required. As far as the Alphacentric end is concerned, you'll have to see if some investors in IOFIX have more information.
We receive a Form 2439 (Notice to Shareholder of Undistributed Long-Term Capital Gains) for the same company; one is from the transfer agent and the other one is from the brokerage. Form 2439 from the transfer agent is generally received weeks ahead of the one from the brokerage.
The only problem I've had with Fido lately has been four consecutive times they accounted for a specific-shares sale as first in-first out. Every time I called to correct that, I asked them to fix the problem with their programming. Finally, this week, they did.
From reports I used to read when I owned IOFIX, it didn't look like they ever held much if anything in qualifying fed obligations, so I don't think you're missing anything there, @finder. Plus there are quite a few structured credit funds out there, so I doubt you'll miss AlphaCentric if you still want to invest in that category. Newer ones include JASSX and DBLNX.
I just received a preliminary version of 1099 Div from Fidelity. (They wait for some info from another fund, they have full information from IOFIX, but incomplete info from another fund.). They list all distributions from IOFIX as ordinary dividends, not a word about ROC. Thus as of now it seems that there is a problem.
@finder: I bet you know this, but just in case, ROC on the Fido 1099 shows up under nondiv distributions. I just looked at mine again, and it's on the last page. (Had some from ETNMX and PFNIX.) Yes, sounds like there's a problem if you've got 19a's with ROC info & Fido's not showing it. (The recording on the CSR line there said Monday, I think it was, that it was a 35m wait to get somebody on the phone.)
If I remember correctly I got the information when I called them last year. It is truly remarkable that this firm is now refusing to divulge information required for tax preparation. I wonder what the SEC would think. I just do not have the time to continue to deal with this issue.
I have 19(a) forms from March to November 2020 as pdf files. Note that the forms 19(a) are not personal, my name is not present on them, they are addressed to ALL shareholders. However, I am not sure that one can use them for filing tax returns since each of them says that this is just AN ESTIMATE, not for tax reporting. Each form that I have says that approximately half of the distribution is ROC, the March form is special, it says that 100% of it is ROC. This is very different from what I see on my preliminary 1099; let us hope that this issue will be clarified.
From the 19a notice:
"Not Tax Reporting. The amounts and sources of distributions reported in this notice are only estimates in order to comply with SEC regulations and are not being provided for tax reporting purposes. The actual amounts and sources of the amounts for tax reporting purposes will depend upon each Fund’s investment experience during the remainder of its fiscal year and may be subject to changes based on tax regulations. The Fund will send you a Form 1099-DIV in early 2022 for the 2021 calendar year that will tell you how to report these distributions for federal income tax purposes (e.g., ordinary income, long-term capital gain or return of capital)."
"The Fund will send you a Form 1099-DIV in early 2022 for the 2021 calendar year that will tell you how to report these distributions."
The 19A document is not a tax reporting document. It is an SEC reporting requirement. It has limitations:
It is based on GAAP reporting.
It is based on book value and not tax-adjusted.
The 1099 is a tax document and follows different rules. It depends on the tax year end for the fund, the calendar year, etc.
The Fund’s tax year end is 3/31. The return of capital rules allow us to only report known return of capital for the tax year. Here is what this means.
Only verified return of capital between April 1 and March 31 can count towards return of capital (i.e., you cannot estimate return of capital for the April 1 to December 31 period). Once this is calculated, it is applied on a calendar year basis. In the case of our fund, January, February and March are the only months where we would report the known return of capital from the previous April 1 to the current 3/31.
The return of capital on the 2020 1099-DIV reflect the return of capital between April 1, 2019 and March 31, 2020 applied to the months of January to March 2020.
For the return of capital generated between 4/1/20 and 3/31/21, that will be applied to January to March 2021 on the 1099-DIV.
This is why the 1099-DIV for the fund only shows return of capital from January to March and then income the rest of the months.
When you look at the 19A’s provided from April to December of 2020, you will see that these say the fund will send a 1099-DIV for these periods in early 2020 for the calendar year 2021. This is also why in April 2020, the current month and fiscal YTD amounts of return of capital are identical because it is the first month in the new fiscal year.
Can you rely on the 19A? Yes and no. It has its limitations as discussed above. However, if you view the 19A and notice that the amount of return of capital is high and is occurring after 3/31, then it’s likely it will show up on the next year’s 1099-DIV. However, there is a limitation in that only January to March can absorb the return of capital. If we had so much return of capital that it could not be absorbed, then it would be lost. It is best to speak to a tax advisor about how to best handle this.
This means that the strange sentence in 19(a) "The Fund will send you a Form 1099-DIV in early 2022 for the 2021 calendar year" is not a typo but their method of reporting.