Foreign Qualified Dividends

[CB1946]

I have an ETF that reported US and foreign dividends, including qualified dividends and foreign taxes paid.  The foreign dividends are reported in the supplemental information section of the tax statement provided by my broker.  However, foreign qualified dividends are reported as $0.00 in that section.  This cannot be right because of the proportion of foreign dividends to total dividends, and the amount of qualified dividends. 

For example, assume total dividends are $10,000, qualified dividends are $7,000 and foreign dividends are $8,000.  No more than $2,000 of US dividends can be qualified dividends, leaving a minimum of $5,000 and a maximum of $7,000 of foreign qualified dividends.  Please correct my logic if it is wrong.

I have contacted my broker and the ETF in an effort to obtain the amount of foreign qualified dividends.  They were not able to provide it to me.  In fact, the ETF website contains a tax document that reports $0.00 in foreign qualified dividends.

Assuming that I will not be able to get the amount of foreign qualified dividends, which of the following alternatives would be the best way to report the dividends in my tax return for the purposes of determining the foreign tax credit:

1.  Assume all of the qualified dividends are foreign qualified dividends ($7,000 using the example above).

2. Pro-rate the qualified dividends based on the ratio of foreign dividends to total dividends:

             ($8,000/$10,000) x $7,000 = $5,600 (using the example above).

3. Report $0.00 of foreign qualified dividends based on the information in the supplemental section and on the website. 

4. Some other way.

I appreciate any suggestions you may have on this subject.

[rogge1722]

What is the ticker symbol of the ETF?

[CB1946]

Thanks for your reply.  I prefer not to identify the fund in fairness to my broker and the fund.  I can tell you that it is with a fairly prominent investment management firm.

[Mike9241]

Flip a coin. My broker breaks out on my 1099-Div the name of stock/etf and related amounts that are included in each category.  Doesn't yours include a detailed supplementary schedule? If you use the lower number supported by the ETF, the IRS might automatically correct it or send you a notice because the amounts don't match their info (maybe not). If you use the broker's number, you could always get a corrected 1099 later in the year. This would likely result in you having to file an amended return and owe more in taxes. 

You may not be able to use 100% of Foreign Qualified Dividends on Form 1116.

https://www.irs.gov/pub/irs-pdf/i1116.pdf    see page 9

[CB1946]

Thanks for your reply.  Yes, my 1099-DIV contains a supplmental section which includes, among other information, foreign dividends and foreign qualified dividends for each company and ETF.  Unfortunately, one of the ETFs shows $0.00 in foreign qualified dividends.  I don't know if that means they have no FQDs or if they just didn't report them.  I tend to think it is the latter because the ETF invests in companies that are located in countries that have tax treaties with the US (e.g. Canada, UK, Australia, Finland, France, Japan, Sweden, Brazil, India, etc.) and at least some of them are foreign qualified corporations.

I appreciate your feedback.

[SusanY1]

Even if the dividends are from qualified foreign corporations, the dividends could be nonqualified for a number of reasons.  For example, the positions could be hedged or may not meet the holding period requirments.  If the broker has given -0- and not just a blank, I think it is safest to assume that none of the dividends are qualified.  

It's still fairly early in the dividend reporting season, though, so I might also just table it for a few weeks to see if your brokerage firm gives you a corrected 1099.  
 

[CB1946]

Thanks for your reply.  I think the problem is that the term foreign qualified dividends is used to refer to two different things:  dividends that qualify for preferential tax rates (cap gains rates), and qualified dividends used in the calculation of the foreign tax credit.  The criteria used to determine qualified dividends in the two cases differ.  I think some confusion could be avoided by using different terms to cover the two situations.

Your suggestions on interpreting 0 to mean 0 and on waiting until further into tax season to see if there are any changes make sense.  Thanks for sharing them with me. 

Good luck to you! 

[DaveF1006]

You are correct. The IRS uses "Qualified Dividends" in two ways. While the definitions overlap, each has its own set of requirements to meet.