8.   Dividends and Other Corporate Distributions

Table of Contents

    * Reminder
    * Introduction
    * Useful Items - You may want to see:
    * General Information
          o Dividends not reported on Form 1099-DIV.
          o Reporting tax withheld.
          o Nominees.
    * Ordinary Dividends
          o Qualified Dividends
          o Dividends Used to Buy More Stock
          o Money Market Funds
    * Capital Gain Distributions
          o Basis adjustment.
    * Nondividend Distributions
          o Liquidating Distributions
          o Distributions of Stock and Stock Rights
    * Other Distributions
          o Information reporting requirement.
          o Alternative minimum tax treatment.
    * How To Report Dividend Income
          o Investment interest deducted.

Reminder

Foreign income. If you are a U.S. citizen with dividend income from sources
outside the United States (foreign income), you must report that income on
your tax return unless it is exempt by U.S. law. This is true whether you
reside inside or outside the United States and whether or not you receive a
Form 1099 from the foreign payer.
Introduction

This chapter discusses the tax treatment of:

    *

      Ordinary dividends,
    *

      Capital gain distributions,
    *

      Nondividend distributions, and
    *

      Other distributions you may receive from a corporation or a mutual fund.

This chapter also explains how to report dividend income on your tax return.

Dividends are distributions of money, stock, or other property paid to you
by a corporation. You also may receive dividends through a partnership, an
estate, a trust, or an association that is taxed as a corporation. However,
some amounts you receive that are called dividends are actually interest
income. (See Dividends that are actually interest under Taxable Interest in
chapter 7.)

Most distributions are paid in cash (or check). However, distributions can
consist of more stock, stock rights, other property, or services.
Useful Items - You may want to see:

Publication

    *

      514 Foreign Tax Credit for Individuals
    *

      550 Investment Income and Expenses
    *

      564 Mutual Fund Distributions

Form (and Instructions)

    *

      Schedule B (Form 1040)
      Interest and Ordinary Dividends
    *

      Schedule 1 (Form 1040A)
      Interest and Ordinary Dividends for Form 1040A Filers

General Information

This section discusses general rules for dividend income.
Tax on investment income of a child under age 14.   Part of a child's 2005
investment income may be taxed at the parent's tax rate. This may happen if
all of the following are true.

  

   1.

      The child was under age 14 at the end of 2005. A child born on
January 1, 1992, is considered to be age 14 at the end of 2005.
   2.

      The child had more than $1,600 of investment income (such as taxable
interest and dividends) and has to file a tax return.
   3.

      Either parent was alive at the end of 2005.

If all of these statements are true, Form 8615, Tax for Children Under Age
14 With Investment Income of More Than $1,600, must be completed and
attached to the child's tax return. If any of these statements is not true,
Form 8615 is not required and the child's income is taxed at his or her own
tax rate.

   However, the parent can choose to include the child's interest and
dividends on the parent's return if certain requirements are met. Use Form
8814, Parents' Election To Report Child's Interest and Dividends, for this
purpose.

  For more information about the tax on investment income of children and
the parents' election, see chapter 31.

Beneficiary of an estate or trust.    Dividends and other distributions you
receive as a beneficiary of an estate or trust are generally taxable
income. You should receive a Schedule K-1 (Form 1041), Beneficiary's Share
of Income, Deductions, Credits, etc., from the fiduciary. Your copy of
Schedule K-1 and its instructions will tell you where to report the income
on your Form 1040.

Social security number (SSN).    You must give your name and SSN (or
individual taxpayer identification number (ITIN)) to any person required by
federal tax law to make a return, statement, or other document that relates
to you. This includes payers of dividends. If you do not give your SSN or
ITIN to the payer of dividends, you may have to pay a penalty.

For more information on SSNs and ITINs, see Social security number (SSN) in
chapter 7.
Backup withholding.   Your dividend income is generally not subject to
regular withholding. However, it may be subject to backup withholding to
ensure that income tax is collected on the income. Under backup
withholding, the payer of dividends must withhold, as income tax, 28% of
the amount you are paid.

  Backup withholding may also be required if the Internal Revenue Service
(IRS) has determined that you underreported your interest or dividend
income. For more information, see Backup Withholding in chapter 4.

Stock certificate in two or more names.   If two or more persons hold stock
as joint tenants, tenants by the entirety, or tenants in common, each
person's share of any dividends from the stock is determined by local law.

Form 1099-DIV.   Most corporations use Form 1099-DIV, Dividends and
Distributions, to show you the distributions you received from them during
the year. Keep this form with your records. You do not have to attach it to
your tax return.

Dividends not reported on Form 1099-DIV.   Even if you do not receive Form
1099-DIV, you must still report all of your taxable dividend income. For
example, you may receive distributive shares of dividends from partnerships
or subchapter S corporations. These dividends are reported to you on
Schedule K-1 (Form 1065) and Schedule K-1 (Form 1120S).

Reporting tax withheld.   If tax is withheld from your dividend income, the
payer must give you a Form 1099-DIV that indicates the amount withheld.

Nominees.   If someone receives distributions as a nominee for you, that
person will give you a Form 1099-DIV, which will show distributions
received on your behalf.

Form 1099-MISC.   Certain substitute payments in lieu of dividends or
tax-exempt interest that are received by a broker on your behalf must be
reported to you on Form 1099-MISC, Miscellaneous Income, or a similar
statement. See Reporting Substitute Payments under Short Sales in chapter 4
of Publication 550 for more information about reporting these payments.

Incorrect amount shown on a Form 1099.   If you receive a Form 1099 that
shows an incorrect amount (or other incorrect information), you should ask
the issuer for a corrected form. The new Form 1099 you receive will be
marked “Corrected.”

Dividends on stock sold.   If stock is sold, exchanged, or otherwise
disposed of after a dividend is declared, but before it is paid, the owner
of record (usually the payee shown on the dividend check) must include the
dividend in income.

Dividends received in January.   If a regulated investment company (mutual
fund) or real estate investment trust (REIT) declares a dividend (including
any exempt-interest dividend or capital gain distribution) in October,
November, or December payable to shareholders of record on a date in one of
those months but actually pays the dividend during January of the next
calendar year, you are considered to have received the dividend on December
31. You report the dividend in the year it was declared.

Ordinary Dividends

Ordinary (taxable) dividends are the most common type of distribution from
a corporation. They are paid out of the earnings and profits of a
corporation and are ordinary income to you. This means they are not capital
gains. You can assume that any dividend you receive on common or preferred
stock is an ordinary dividend unless the paying corporation tells you
otherwise. Ordinary dividends will be shown in box 1a of the Form 1099-DIV
you receive.
Qualified Dividends

Qualified dividends are the ordinary dividends that are subject to the same
5% or 15% maximum tax rate that applies to net capital gain. They should be
shown in box 1b of the Form 1099-DIV you receive.

Qualified dividends are subject to the 15% rate if the regular tax rate
that would apply is 25% or higher. If the regular tax rate that would apply
is lower than 25%, qualified dividends are subject to the 5% rate.

To qualify for the 5% or 15% maximum rate, all of the following
requirements must be met.

   1.

      The dividends must have been paid by a U.S. corporation or a
qualified foreign corporation. (See Qualified foreign corporation later.)
   2.

      The dividends are not of the type listed later under Dividends that
are not qualified dividends.
   3.

      You meet the holding period (discussed next).

Holding period.   You must have held the stock for more than 60 days during
the 121-day period that begins 60 days before the ex-dividend date. The
ex-dividend date is the first date following the declaration of a dividend
on which the buyer of a stock will not receive the next dividend payment.
Instead, the seller will get the dividend.

  When counting the number of days you held the stock, include the day you
disposed the stock, but not the day you acquired it. See the examples later.

Exception for preferred stock.   In the case of preferred stock, you must
have held the stock more than 90 days during the 181-day period that begins
90 days before the ex-dividend date if the dividends are due to periods
totaling more than 366 days. If the preferred dividends are due to periods
totaling less than 367 days, the holding period in the previous paragraph
applies.

Example 1.

You bought 5,000 shares of XYZ Corp. common stock on June 30, 2005. XYZ
Corp. paid a cash dividend of 10 cents per share. The ex-dividend date was
July 8, 2005. Your Form 1099-DIV from XYZ Corp. shows $500 in box 1a
(ordinary dividends) and in box 1b (qualified dividends). However, you sold
the 5,000 shares on August 3, 2005. You held your shares of XYZ Corp. for
only 34 days of the 121-day period (from July 1, 2005, through August 3,
2005). The 121-day period began on May 9, 2005 (60 days before the
ex-dividend date), and ended on September 6, 2005. You have no qualified
dividends from XYZ Corp. because you held the XYZ stock for less than 61 days.

Example 2.

Assume the same facts as in Example 1 except that you bought the stock on
July 7, 2005 (the day before the ex-dividend date), and you sold the stock
on September 8, 2005. You held the stock for 63 days (from July 8, 2005,
through September 8, 2005). The $500 of qualified dividends shown in box 1b
of your Form 1099-DIV are all qualified dividends because you held the
stock for 61 days of the 121-day period (from July 8, 2005, through
September 6, 2005).

Example 3.

You bought 10,000 shares of ABC Mutual Fund common stock on June 30, 2005.
ABC Mutual Fund paid a cash dividend of 10 cents a share. The ex-dividend
date was July 8, 2005. The ABC Mutual Fund advises you that the portion of
the dividend eligible to be treated as qualified dividends equals 2 cents
per share. Your Form 1099-DIV from ABC Mutual Fund shows total ordinary
dividends of $1,000 and qualified dividends of $200. However, you sold the
10,000 shares on August 3, 2005. You have no qualified dividends from ABC
Mutual Fund because you held the ABC Mutual Fund stock for less than 61 days.
Holding period reduced where risk of loss is diminished.   When determining
whether you met the minimum holding period discussed earlier, you cannot
count any day during which you meet any of the following conditions.

   1.

      You had an option to sell, were under a contractual obligation to
sell, or had made (and not closed) a short sale of substantially identical
stock or securities.
   2.

      You were grantor (writer) of an option to buy substantially identical
stock or securities.
   3.

      Your risk of loss is diminished by holding one or more other
positions in substantially similar or related property.

  For information about how to apply condition (3), see Regulations section
1.246-5.

Qualified foreign corporation.   A foreign corporation is a qualified
foreign corporation if it meets any of the following conditions.

   1.

      The corporation is incorporated in a U.S. possession.
   2.

      The corporation is eligible for the benefits of a comprehensive
income tax treaty with the United States that the Treasury Department
determines is satisfactory for this purpose and that includes an exchange
of information program. For a list of those treaties, seeTable 8-1.
   3.

      The corporation does not meet (1) or (2) above, but the stock for
which the dividend is paid is readily tradable on an established securities
market in the United States. See Readily tradable stock, later.

Exception.   A corporation is not a qualified foreign corporation if it is
a passive foreign investment company during its tax year in which the
dividends are paid or during its previous tax year.

Readily tradable stock.   Any stock (such as common, ordinary stock, or
preferred stock) or an American depositary receipt in respect of that
stock, is considered to satisfy requirement (3) if it is listed on one of
the following securities markets: the New York Stock Exchange, the NASDAQ
Stock Market, the American Stock Exchange, the Boston Stock Exchange, the
Cincinnati Stock Exchange, the Chicago Stock Exchange, the Philadelphia
Stock Exchange, or the Pacific Exchange, Inc.

Dividends that are not qualified dividends.   The following dividends are
not qualified dividends. They are not qualified dividends even if they are
shown in box 1b of Form 1099-DIV.

    *

      Capital gain distributions.
    *

      Dividends paid on deposits with mutual savings banks, cooperative
banks, credit unions, U.S. building and loan associations, U.S. savings and
loan associations, federal savings and loan associations, and similar
financial institutions. (Report these amounts as interest income.)
    *

      Dividends from a corporation that is a tax-exempt organization or
farmer's cooperative during the corporation's tax year in which the
dividends were paid or during the corporation's previous tax year.
    *

      Dividends paid by a corporation on employer securities which are held
on the date of record by an employee stock ownership plan (ESOP) maintained
by that corporation.
    *

      Dividends on any share of stock to the extent that you are obligated
(whether under a short sale or otherwise) to make related payments for
positions in substantially similar or related property.
    *

      Payments in lieu of dividends, but only if you know or have reason to
know that the payments are not qualified dividends.
    *

      Payments shown in Form 1099-DIV, box 1b, from a foreign corporation
to the extent you know or have reason to know the payments are not
qualified dividends.

Income tax treaties that the United States has with the following countries
satisfy requirement (2) under Qualified foreign corporation.
  	  	 
Australia 	Ireland 	Romania
Austria 	Israel 	Russian
Belgium 	Italy 	Federation
Canada 	Jamaica 	Slovak
China 	Japan 	Republic
Cyprus 	Kazakhstan 	Slovenia
Czech 	Korea 	South Africa
Republic 	Latvia 	Spain
Denmark 	Lithuania 	Sweden
Egypt 	Luxembourg 	Switzerland
Estonia 	Mexico 	Thailand
Finland 	Morocco 	Trinidad and
France 	Netherlands 	Tobago
Germany 	New Zealand 	Tunisia
Greece 	Norway 	Turkey
Hungary 	Pakistan 	Ukraine
Iceland 	Philippines 	United
India 	Poland 	Kingdom
Indonesia 	Portugal 	Venezuela

Dividends Used to Buy More Stock

The corporation in which you own stock may have a dividend reinvestment
plan. This plan lets you choose to use your dividends to buy (through an
agent) more shares of stock in the corporation instead of receiving the
dividends in cash. If you are a member of this type of plan and you use
your dividends to buy more stock at a price equal to its fair market value,
you still must report the dividends as income.

If you are a member of a dividend reinvestment plan that lets you buy more
stock at a price less than its fair market value, you must report as
dividend income the fair market value of the additional stock on the
dividend payment date.

You also must report as dividend income any service charge subtracted from
your cash dividends before the dividends are used to buy the additional
stock. But you may be able to deduct the service charge. See chapter 28 for
more information about deducting expenses of producing income.

In some dividend reinvestment plans, you can invest more cash to buy shares
of stock at a price less than fair market value. If you choose to do this,
you must report as dividend income the difference between the cash you
invest and the fair market value of the stock you buy. When figuring this
amount, use the fair market value of the stock on the dividend payment date.
Money Market Funds

Report amounts you receive from money market funds as dividend income.
Money market funds are a type of mutual fund and should not be confused
with bank money market accounts that pay interest.
Capital Gain Distributions

Capital gain distributions (also called capital gain dividends) are paid to
you or credited to your account by regulated investment companies (commonly
called mutual funds) and real estate investment trusts (REITs). They will
be shown in box 2a of the Form 1099-DIV you receive from the mutual fund or
REIT.

Report capital gain distributions as long-term capital gains regardless of
how long you owned your shares in the mutual fund or REIT.
Undistributed capital gains of mutual funds and REITs.    Some mutual funds
and REITs keep their long-term capital gains and pay tax on them. You must
treat your share of these gains as distributions, even though you did not
actually receive them. However, they are not included on Form 1099-DIV.
Instead, they are reported to you on Form 2439, Notice to Shareholder of
Undistributed Long-Term Capital Gains.

  Report undistributed capital gains (box 1a of Form 2439) as long-term
capital gains on Schedule D (Form 1040), column (f), line 11.

  The tax paid on these gains by the mutual fund or REIT is shown in box 2
of Form 2439. You take credit for this tax by including it on Form 1040,
line 70, and checking box a on that line. Attach Copy B of Form 2439 to
your return, and keep Copy C for your records.

Basis adjustment.   Increase your basis in your mutual fund, or your
interest in a REIT, by the difference between the gain you report and the
credit you claim for the tax paid.

Additional information.   For more information on the treatment of
distributions from mutual funds, see Publication 564.

Nondividend Distributions

A nondividend distribution is a distribution that is not paid out of the
earnings and profits of a corporation. You should receive a Form 1099-DIV
or other statement from the corporation showing the nondividend
distribution. On Form 1099-DIV, a nondividend distribution will be shown in
box 3. If you do not receive such a statement, you report the distribution
as an ordinary dividend.
Basis adjustment.   A nondividend distribution reduces the basis of your
stock. It is not taxed until your basis in the stock is fully recovered.
This nontaxable portion is also called a return of capital. It is a return
of your investment in the stock of the company. If you buy stock in a
corporation in different lots at different times, and you cannot definitely
identify the shares subject to the nondividend distribution, reduce the
basis of your earliest purchases first.

  When the basis of your stock has been reduced to zero, report any
additional nondividend distribution that you receive as a capital gain.
Whether you report it as a long-term or short-term capital gain depends on
how long you have held the stock. See Holding Period in chapter 14.

Example.

You bought stock in 1993 for $100. In 1996, you received a nondividend
distribution of $80. You did not include this amount in your income, but
you reduced the basis of your stock to $20. You received a nondividend
distribution of $30 in 2005. The first $20 of this amount reduced your
basis to zero. You report the other $10 as a long-term capital gain for
2005. You must report as a long-term capital gain any nondividend
distribution you receive on this stock in later years.
Liquidating Distributions

Liquidating distributions, sometimes called liquidating dividends, are
distributions you receive during a partial or complete liquidation of a
corporation. These distributions are, at least in part, one form of a
return of capital. They may be paid in one or more installments. You will
receive a Form 1099-DIV from the corporation showing you the amount of the
liquidating distribution in box 8 or 9.

For more information on liquidating distributions, see chapter 1 of
Publication 550.
Distributions of Stock and Stock Rights

Distributions by a corporation of its own stock are commonly known as stock
dividends. Stock rights (also known as “stock options”) are distributions
by a corporation of rights to acquire the corporation's stock. Generally,
stock dividends and stock rights are not taxable to you, and you do not
report them on your return.
Taxable stock dividends and stock rights.   Distributions of stock
dividends and stock rights are taxable to you if any of the following apply.

   1.

      You or any other shareholder has the choice to receive cash or other
property instead of stock or stock rights.
   2.

      The distribution gives cash or other property to some shareholders
and an increase in the percentage interest in the corporation's assets or
earnings and profits to other shareholders.
   3.

      The distribution is in convertible preferred stock and has the same
result as in (2).
   4.

      The distribution gives preferred stock to some common stock
shareholders and common stock to other common stock shareholders.
   5.

      The distribution is on preferred stock. (The distribution, however,
is not taxable if it is an increase in the conversion ratio of convertible
preferred stock made solely to take into account a stock dividend, stock
split, or similar event that would otherwise result in reducing the
conversion right.)

  The term “stock” includes rights to acquire stock, and the term
“shareholder” includes a holder of rights or of convertible securities.

If you receive taxable stock dividends or stock rights, include their fair
market value at the time of the distribution in your income.
Preferred stock redeemable at a premium.   If you hold preferred stock
having a redemption price higher than its issue price, the difference (the
redemption premium) generally is taxable as a constructive distribution of
additional stock on the preferred stock. For more information, see chapter
1 of Publication 550.

Basis.   Your basis in stock or stock rights received in a taxable
distribution is their fair market value when distributed. If you receive
stock or stock rights that are not taxable to you, see Stocks and Bonds
under Basis of Investment Property in chapter 4 of Publication 550 for
information on how to figure their basis.

Fractional shares.    You may not own enough stock in a corporation to
receive a full share of stock if the corporation declares a stock dividend.
However, with the approval of the shareholders, the corporation may set up
a plan in which fractional shares are not issued, but instead are sold, and
the cash proceeds are given to the shareholders. Any cash you receive for
fractional shares under such a plan is treated as an amount realized on the
sale of the fractional shares. You must determine your gain or loss and
report it as a capital gain or loss on Schedule D (Form 1040). Your gain or
loss is the difference between the cash you receive and the basis of the
fractional shares sold.

Example.

You own one share of common stock that you bought on January 3, 1997, for
$100. The corporation declared a common stock dividend of 5% on June 30,
2005. The fair market value of the stock at the time the stock dividend was
declared was $200. You were paid $10 for the fractional-share stock
dividend under a plan described in the above paragraph. You figure your
gain or loss as follows:

Fair market value of old stock 	$200.00
Fair market value of stock dividend (cash received) 	+10.00
Fair market value of old stock and stock dividend 	$210.00
Basis (cost) of old stock after the stock dividend (($200 ÷ $210) × $100) 
$95.24
Basis (cost) of stock dividend (($10 ÷ $210) × $100) 	+ 4.76
Total 	$100.00
Cash received 	$10.00
Basis (cost) of stock dividend 	- 4.76
Gain 	$5.24

Because you had held the share of stock for more than 1 year at the time
the stock dividend was declared, your gain on the stock dividend is a
long-term capital gain.
Scrip dividends.   A corporation that declares a stock dividend may issue
you a scrip certificate that entitles you to a fractional share. The
certificate is generally nontaxable when you receive it. If you choose to
have the corporation sell the certificate for you and give you the
proceeds, your gain or loss is the difference between the proceeds and the
portion of your basis in the corporation's stock that is allocated to the
certificate.

  However, if you receive a scrip certificate that you can choose to redeem
for cash instead of stock, the certificate is taxable when you receive it.
You must include its fair market value in income on the date you receive it.

Other Distributions

You may receive any of the following distributions during the year.
Exempt-interest dividends.   Exempt-interest dividends you receive from a
regulated investment company (mutual fund) are not included in your taxable
income. You will receive a notice from the mutual fund telling you the
amount of the exempt-interest dividends you received. Exempt-interest
dividends are not shown on Form 1099-DIV or Form 1099-INT.

Information reporting requirement.   Although exempt-interest dividends are
not taxable, you must show them on your tax return if you have to file a
return. This is an information reporting requirement and does not change
the exempt-interest dividends to taxable income.

Alternative minimum tax treatment.   Exempt-interest dividends paid from
specified private activity bonds may be subject to the alternative minimum
tax. See Alternative Minimum Tax in chapter 30 for more information.

Dividends on insurance policies.    Insurance policy dividends that the
insurer keeps and uses to pay your premiums are not taxable. However, you
must report as taxable interest income the interest that is paid or
credited on dividends left with the insurance company.

   If dividends on an insurance contract (other than a modified endowment
contract) are distributed to you, they are a partial return of the premiums
you paid. Do not include them in your gross income until they are more than
the total of all net premiums you paid for the contract. Report any taxable
distributions on insurance policies on Form 1040, line 16b, or Form 1040A,
line 12b.

Dividends on veterans' insurance.   Dividends you receive on veterans'
insurance policies are not taxable. In addition, interest on dividends left
with the Department of Veterans Affairs is not taxable.

Patronage dividends.   Generally, patronage dividends you receive in money
from a cooperative organization are included in your income.

  Do not include in your income patronage dividends you receive on:

   1.

      Property bought for your personal use, or
   2.

      Capital assets or depreciable property bought for use in your
business. But you must reduce the basis (cost) of the items bought. If the
dividend is more than the adjusted basis of the assets, you must report the
excess as income.

  These rules are the same whether the cooperative paying the dividend is a
taxable or tax-exempt cooperative.

Alaska Permanent Fund dividends.    Do not report these amounts as
dividends. Instead, report these amounts on Form 1040, line 21, Form 1040A,
line 13, or Form 1040EZ, line 3.

How To Report Dividend Income

Generally, you can use either Form 1040 or Form 1040A to report your
dividend income. Report the total of your ordinary dividends on line 9a of
Form 1040 or Form 1040A. Report qualified dividends on line 9b.

If you receive capital gain distributions, you may be able to use Form
1040A or you may have to use Form 1040. See Capital gain distributions only
in chapter 16. If you receive nondividend distributions required to be
reported as capital gains, you must use Form 1040. You cannot use Form
1040EZ if you receive any dividend income.
Form 1099-DIV.   If you owned stock on which you received $10 or more in
dividends and other distributions, you should receive a Form 1099-DIV. Even
if you do not receive Form 1099-DIV, you must report all of your taxable
dividend income.

  See Form 1099-DIV for more information on how to report dividend income.

Form 1040A.   You must complete Schedule 1 (Form 1040A), Part II, and
attach it to your Form 1040A, if:

   1.

      Your ordinary dividends (Form 1099-DIV, box 1a) are more than $1,500, or
   2.

      You received, as a nominee, dividends that actually belong to someone
else.

  List on line 5 each payer's name and the amount of ordinary dividends you
received. If you received a Form 1099-DIV from a brokerage firm, list the
brokerage firm as the payer.

  Enter on line 6 the total of the amounts listed on line 5. Also enter
this total on Form 1040A, line 9a.

Form 1040.    You must fill in Schedule B, Part II, and attach it to your
Form 1040, if:

   1.

      Your ordinary dividends (Form 1099-DIV, box 1a) are more than $1,500, or
   2.

      You received, as a nominee, dividends that actually belong to someone
else.

If your ordinary dividends are more than $1,500, you must also complete
Schedule B, Part III.

  List on Schedule B, Part II, line 5, each payer's name and the amount of
ordinary dividends you received. If your securities are held by a brokerage
firm (in “street name”), list the name of the brokerage firm that is shown
on Form 1099-DIV as the payer. If your stock is held by a nominee who is
the owner of record, and the nominee credited or paid you dividends on the
stock, show the name of the nominee and the dividends you received or for
which you were credited.

  Enter on line 6 the total of the amounts listed on line 5. Also enter
this total on Form 1040, line 9a.

Qualified dividends.   Report qualified dividends (Form 1099-DIV, box 1b)
on line 9b of Form 1040 or Form 1040A. Do not include any of the following
on line 9b.

    *

      Qualified dividends you received as a nominee. See Nominees under How
to Report Dividend Income in chapter 1 of Publication 550.
    *

      Dividends on stock for which you did not meet the holding period. See
Holding period earlier under Qualified Dividends.
    *

      Dividends on any share of stock to the extent that you are obligated
(whether under a short sale or otherwise) to make related payments for
positions in substantially similar or related property.
    *

      Payments in lieu of dividends, but only if you know or have reason to
know that the payments are not qualified dividends.
    *

      Payments shown in Form 1099-DIV, box 1b, from a foreign corporation
to the extent you know or have reason to know the payments are not
qualified dividends.

  If you have qualified dividends, you must figure your tax by completing
the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040 or
1040A instructions or the Schedule D Tax Worksheet in the Schedule D
instructions, whichever applies. Enter qualified dividends on line 2 of the
worksheet.

Investment interest deducted.   If you claim a deduction for investment
interest, you may have to reduce the amount of your qualified dividends
that are eligible for the 5% or 15% tax rate. Reduce it by the amount of
qualified dividends you choose to include in investment income when
figuring the limit on your investment interest deduction. This is done on
the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D
Tax Worksheet. For more information about the limit on investment interest,
see Interest Expenses in chapter 23.

Expenses related to dividend income.   You may be able to deduct expenses
related to dividend income if you itemize your deductions on Schedule A
(Form 1040). See chapter 28 for general information about deducting
expenses of producing income.

More information.    For more information about how to report dividend
income, see chapter 1 of Publication 550 or the instructions for the form
you must file.