Sogoinvest did not classify qualified dividends

Last year, I invested in a few ETFs using Sogoinvest and these ETFs had some income dividends distributions.

After I received the 1099DIV form from Sogoinvest, I noticed that all the dividends are classified as ordinary dividends, none of them are classified as qualified dividends. Also, for my VWO (Vanguard Emerging Market ETF) holding, the foreign taxes paid are not declared in the 1099DIV form. I know these are incorrect because the same ETF holdings held at Ameritrade had qualified dividends and foreign taxes paid declared in the 1099DIV form.

These incorrect figures are not good for me or investors in general because the tax rate for a qualified dividend distribution is typically only 15%, whereas the tax rate for an unqualified dividend can run as high as 35%. In addition, any foreign taxes paid by the fund can be claimed back as a credit in the tax return, dollar-for-dollar.

I requested Sogoinvest through their secure message system to issue me an updated 1099DIV. Here’s their “canned” reply:

We will look into this, the 1099 statements reflect what the IRS gave to us. So we will look into this and get it corrected if it needs to be as soon as possible.

Huh? I thought it is Sogoinvest who reports the dividend information to the IRS instead of the other way round? Anyway, I did not try to argue with them on this point.

I was not hopeful that I would get an updated 1099DIV on time, but there is nothing much I could do but to wait for an update. I also sent them a reminder some time after my original request. Then came April 14, but nothing. In the end, I filed my taxes without an updated 1099DIV, paying more in taxes than I actually need to. By my estimate, I probably paid about $50 more in taxes because of the inaccuracies in the 1099DIV form generated by Sogoinvest.

I do not know if this is an isolated case of an incorrect 1099DIV form, but if the qualified dividends and foreign taxes paid are generally not reported by Sogoinvest, then it will be a very big turn-off indeed.

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4 Responses to “Sogoinvest did not classify qualified dividends”

  1. T. Newman Says:

    In this situation, can’t you just declare them on your tax forms as qualified dividends? If you meet the holding period requirements, wouldn’t you be OK? If you’re audited, just show the documentation? I think that the only way they’re not qualified is if the broker borrowed your shares, for example to let someone else sell them short, but I think the broker is required to inform you of that in some way, for example by listing them not as dividends on your 1099 but as payments-in-lieu.

  2. indexfundfan Says:

    I thought about declaring them as qualified but I don’t want to invite an audit which will probably cost me more in time and headaches. In the end, I just “eat” the loss.

    I don’t know if my shares were loaned out but I am more inclined to believe that Sogoinvest was sloppy in handling the 1099DIV. Reason? Because the foreign taxes paid from VWO was declared in the 1099 form to be zero. This is definitely incorrect.

  3. indexfundfan @ indextown » Blog Archive » My Last Words on Sogoinvest Says:

    [...] After one year, Sogoinvest still did not get the qualified dividends right. In April 2007, I complained to them that some of my dividends were incorrectly classified. I never received a satisfactory reply, other [...]

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