As a US citizen, in a US taxable brokerage account, I received distributions from MORL, a UBS (Swiss)-sponsored exchange-traded note (ETN). The brokerage account statements label the distributions as non-qualified dividends. However, the 1099 provided by the broker for the relevant tax year does not show these distributions anywhere -- neither on 1099-DIV, -INT, nor -MISC. (Capital gains from selling the ETN are, however, included on 1099-B.)

When asked, the broker says that these are considered as dividends from a foreign source (Switzerland) and that the broker is therefore not required to report them on the 1099. Is this correct? I think other brokers have included similar distributions.

I believe that I am still responsible for reporting these distributions on my tax return since US citizens are taxed on worldwide income. So, how do I know what is the correct category for the MORL distributions (are they indeed non-qualified dividends)? Is there some other tax reporting information I should have received (e.g., from UBS)? My online IRS wage and income transcript does not show any entry corresponding to these distributions.

If they have simply not been reported, is there any special process for listing, e.g., dividends on a tax return when there is not a 1099 showing them?

  • Is there any chance that it is a non-taxable return of investment capital? Either way, speak to an accountant. Jun 5 '18 at 14:00
  • @BobBaerker Return of capital is supposed to be listed in 1099-DIV box 3 (and mine is 0.00), so that does not explain its absence.
    – nanoman
    Jun 5 '18 at 14:03
  • 1
    There is certainly no exclusion from reporting because the source is foreign. If the amount is small (under $10), and there is no withholding of foreign tax (which in my experience with foreign stocks and funds but not ETNs there usually is), that is exempted. In any case, you can put it correctly on your return regardless of a missing or even erroneous 1099, just keep the records that show your figures are correct in the (unlikely) event they audit or otherwise challenge you. Jun 9 '18 at 2:30
  • @dave_thompson_085 "no exclusion from reporting" -- are you saying that since the amount is well over $10, the broker must include it somewhere on the 1099, and the reason the broker gave me for not having done so (that it's a Swiss ETN) is definitely invalid? Is there any point to pursuing the 1099 issue further if the broker insists the 1099 is correct? This is a well-known brokerage firm and presumably has a large tax compliance staff.
    – nanoman
    Jun 9 '18 at 3:56

Based on public information, the most likely conclusion is that the MORL distributions are to be treated as interest (and thus taxed at ordinary income rates). MORL is issued by UBS under the umbrella of "Debt Securities", specifically "Medium-Term Notes, Series A". The general prospectus for this category says (emphasis added):

U.S. Tax Considerations

... you will be taxed on any interest on your debt security ... as ordinary income at the time you receive the interest or it accrues, depending on your method of accounting for tax purposes.

There is no mention of "dividends" or other different types of distribution in this context. Then, the "Pricing Supplement" that gives specifics on MORL says, consistently:

Material U.S. Federal Income Tax Consequences

... you and we agree (in the absence of a statutory, regulatory, administrative or judicial ruling to the contrary) to treat the Coupon Amounts ... as amounts that are included in ordinary income for tax purposes at the time such amounts accrue or are received, in accordance with your regular method of tax accounting.

In addition to these official documents, there are specific anecdotal forum and blog reports (perhaps from people whose brokers did list MORL distributions on 1099-INT):

UBS Etracs notes that I own (CEFL, MORL) throw off Interest Income

While typically called dividends, the monthly payments from MORL are technically distributions of interest payments on the ETN note based on the dividends paid by the underlying mREITs, pursuant to the terms of the indenture.

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