I agree, this makes no sense. Perhaps the investment that generated the dividend is not properly titled, in which case it wouldn't be considered to be an investment in an IRA, or it's not properly tagged by the entity that generated the Form 1099-DIV as being held by an IRA which would make it exempt from reporting on Form 1099-DIV.
It seems to me that the IRA trustee would need to file Form 990-T to get credit for the tax withholding and a refund of the backup tax withholding back to the IRA. Form 990-T Part III line 6e is for reporting backup withholding. Page 3 of the instructions for Form 990-T indicate how to claim a refund of backup withholding: https://www.irs.gov/pub/irs-pdf/i990t.pdf
I don't think that the backup withholding constitutes a distribution from the IRA since it's not creditable to the the IRA owner.
