A company you invested in might send you a check instead of crediting a fractional share to your stock account. If you cash the check, you might also receive a Form 1099-B at the end of the year with the description of “cash in lieu.” This is for the cash (the check) you received in lieu of receiving a fractional share.
There are different reporting rules depending on why you received the cash.
The company might have sent you cash in lieu of a fractional share after a stock split. Most corporations don’t issue fractional shares when they split a stock. They pay the shareholder cash for the fractional share, and the fractional share is considered sold. So, you’ll receive a 1099-B.
Ex: ABC Corporation issues 1.5 shares of stock for each outstanding share of stock (a 3-for-2 split). Dana owned 55 shares before the split and owns 82.5 shares after the split. However, ABC won't issue fractional shares.
The stock is worth $20 per share on the date of the split, and ABC pays Dana $10 for her half share. If Dana paid $1,000 for the shares, the basis of the shares after the split is $12.12 per share ($1,000 ÷ 82.5 shares). Since ABC paid Dana for her half share, she basically sold 0.5 shares with a basis of $6.06. So she must report a gain of $3.94 ($10 - $6.06) from the sale of the fractional share.