What is Payment in lieu (PIL) of Interest and Dividends?

Receipt of a Payment in Lieu of dividend ('PIL') is generally a result of carrying a debit cash balance.  Customers maintaining a debit cash balance are subject to having their shares re-hypothecated by IBKR, which can cause receipt of PIL instead of ordinary dividends. For Interactive Brokers LLC customers, 140% of the debit cash balance in stock value can be unsegregated and therefore become subject to receiving PIL. …

You cannot simply use cash received from a short sale to meet the margin requirement for a new order in your account. A short stock sale is a margin transaction in which the account holder is borrowing stock rather than cash. While the proceeds from the short sale are credited to the cash balance of the account, these funds must be posted with the lender of the shares as collateral to secure their return. As a result, and in recognition of the fact that the loan transaction is subject to its own financing terms, the cash collateralizing the loan is excluded for the purpose of determining whether a margin loan exists…

Your account was lending shares of stock on the stock’s dividend record date.  Instead of being paid a dividend, you were paid a Payment-in-Lieu of a dividend, or “PIL.” As a US taxpayer, you may experience adverse tax consequences from receiving PIL, instead of the dividend directly from the issuer, while shares were on-loan.  This payment is your compensation for potential adverse tax consequences, and is called a “Gross-Up.” …

The first step is to determine the value of securities, if any, which IBKR maintains a margin lien upon and can lend without client participation in the Stock Yield Enhancement Program. A broker who finances client purchases of securities via margin loan is allowed by regulation to loan or pledge as collateral that client’s securities which are in excess of the segregation requirement as determined under CIRO Rule 4316…