Broker lent units of listed limited partnership via securities lending. Partnership distributed cash while the units were lent. Broker listed the distribution on the 1099 as payment in lieu of dividend. However, as if that was not bad enough with ordinary income tax rates payable on that amount, the distribution is ALSO listed on the partnership K-1 form and the tax basis reduced by that amount. I am having a hard time understanding this, but it appears that something doesn't add up here. In general, distributions of a partnership having nothing to do with the taxable income that the unit holder is being allocated from the partnership. It's a distribution, not a dividend. So how can there be a payment in lieu of dividend, if there is no dividend in the first place? Secondly, I am having a hard time understanding the logic. If the unit holder received the payment in lieu of dividend/distribution, as the units were not in possession of the owner at the time of distribution, then the person who borrowed the units presumably received the distribution, not the owner. If that is the case, does that mean the partnership K-1 is incorrect in that it should not list the distribution during the time when the units were lent out, on the tax form of the original unit holder? How would that piece of information (timeframe during which security was lent by broker) normally be transmitted to the partnership? How would I go about correcting that mess?