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What is a dividend reclassification?

Real Estate Investment Trusts (REITs) and Regulated Investment Companies (RICs), which include exchange-traded funds (ETFs) and closed-end funds, may be subject to dividend reclassification. It is important to understand the nature and ramifications of dividend reclassification. Dividend reclassification is a fund or company reevaluating its past year's accounting and changing the classification of income. This event is unpredictable and may happen each year to a number of these securities. Once this process is completed, the fund/company may need to retroactively reclassify a certain percentage of the dividend already paid. There is no deadline imposed upon the fund or company and often we are notified by the fund or company of these reclassification well after the Form 1099-DIV has been provided to our customers. Therefore, we are obligated to correct the Form 1099-DIV information when the information is received.

If this happens to any of your securities, you will receive an updated 1099-DIV form as soon as we have completed the reclassification process. If you hold a number of different securities that may be subject to dividend reclassifications, each of them could result in a number of corrected Form 1099-DIVs being provided to you at different times. It is for this reason that we suggest that if you are a holder of one or more open or closed-end mutual funds or other securities that may be subject to dividend reclassification, you take into consideration the possibility of dividend reclassifications when deciding when you should file your tax returns to reduce the possibility of having to file a corrected return. Unfortunately, under the rules and laws as they now exist, dividend reclassifications and the corrections that result are entirely beyond the control of Capital One Investing℠.

Why would I receive dividends in January for the previous tax year?

If a Regulated Investment Company (RIC) or a Real Estate Investment Trust (REIT) declares a dividend in October, November or December, payable to shareholders of record on a specified date in such a month, the dividends are treated as paid by the RIC or REIT and received by the recipients on December 31 of such year as long as the dividends are actually paid by the RIC or REIT during January of the following year. This includes some Exchange-traded funds (ETFs).

Not all issuers make their final distribution information available until after December or January. These dividend amounts are reported on your 1099-DIV Form for the previous tax year even though the dividend is received in January. As some of these dividends are not paid out until January 31, your revised 1099-DIV Forms will not be available until all dividend payouts are received and processed.

Tip: A good source of information on 1099 Forms and the information that they contain is the IRS website. Capital One Investing, LLC does not provide tax advice. Please consult your tax advisor for additional information.