Mechanically I'm not entirely sure I know how the non-dividend distributions play into the calculation of "compensation" that's used for Qualified sales.
The compensation and addition to basis for qualified sales is the lesser of:
1) The discount percentage applied to the GRANT date FMV
2) Actual gain, i.e., proceeds minus what you paid for the stock
Taking that literally it seems like you would first determine the compensation and basis addition "by the book" ignoring the non-dividend distributions. Having determined your basis it seems like you'd then subtract the non-dividend distributions from that for the basis you're going to use in reporting your sales.
You might be able to figure out how to finesse the Form 3922 information to get this all to work but the straight-forward method would be to simply enter the sales using the default 1099-B input form either simply entering the correct basis, (in the situation where basis is NOT reported to the IRS) or correcting the reported basis (when basis IS reported to the IRS).
Then you could report the compensation income directly by:
Starting the "Miscellaneous Income, 1099-A, 11099-C" interview.
Starting the "Other income not already reported on a Form W-2 or Form 1099" interview.
Answering "Yes" on the "Other Wages Received" page.
Entering $0 on the "Wages Earned as a Household Employee" page.
Entering $0 on the "Sick or Disability Pay" page.
Answering "Yes" on the "Any Other Earned Income" page.
Ticking "Other on the "Enter Source of Other Earned Income" page.
Entering a description and an amount on the "Any Other Earned Income" page.
Tom Young
