In the following case a taxpayer decided to disregard a 1099-DIV. The investor owned stock in several publicly traded Canadian companies and received the actual dividends.
Although the 1099-DIV’s were received by the taxpayer from each corporation saying the payouts were taxable, the taxpayer decided to ignore the forms. He decided to treat the bulk of the payouts as a return of capital. This is based upon analysis of the firms’ financial statements and found most of them were operating at a loss.
But he overlooked or ignored the rule that even if there are no profits in the current year, dividends paid from profits left over from prior years are taxable. The Tax Court also issued a negligence penalty.
(Juha, TC Memo. 2012-68).