As Ctmedic indicated the short owes payment in lie
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Posted On: 11/12/2020 9:02:07 PM
As Ctmedic indicated the short owes payment in lieu of dividend to make the long lender “whole” on what they are owed.
However, if the long holder is not the holder of record on div record date (I.e. if they are lending their shares to shorts) then they won’t receive anything. Also note that payment in lieu is treated as ordinary income whereas receiving the div directly would be treated as div income which is often taxed at a much lower rate. Not all brokers overcharge the short to make up for this tax difference (some may but you need to confirm this in advance).
Bottom line - safest bet to receive the div and be taxed favorably - tell the broker to not lend your shares! (Or at least over record date)
I’m not a tax accountant but I did stay at a Holiday Inn last night.
However, if the long holder is not the holder of record on div record date (I.e. if they are lending their shares to shorts) then they won’t receive anything. Also note that payment in lieu is treated as ordinary income whereas receiving the div directly would be treated as div income which is often taxed at a much lower rate. Not all brokers overcharge the short to make up for this tax difference (some may but you need to confirm this in advance).
Bottom line - safest bet to receive the div and be taxed favorably - tell the broker to not lend your shares! (Or at least over record date)
I’m not a tax accountant but I did stay at a Holiday Inn last night.
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