A customer recently sent in a broker statement and asked what this transaction called a payment in-lieu of dividend was and how it is recorded in their club accounting records. This transaction is for a payment received for a dividend when your broker loans your shares to another investor, typically someone making a short sale. If a dividend is payable during the time the shares are on loan, you are reimbursed for the dividend missed due to the shares being on loan. The reimbursement payment is the payment in-lieu of dividend. Unfortunately, the payment in-lieu of dividend is not treated as a dividend for tax purposes.
For this transaction to happen your account at the brokerage firm must be a margin account. Cash accounts do not allow brokers to borrow your shares.
For more details ICLUBcentral has an FAQ on this topic on their website at this URL:
https://www.iclub.com/faq/Home/Article?id=700

Russell Malley