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You should be reporting the income as indicated on the 1099 unless you believe it is incorrect. If you believe the brokerage house has made an error you should contact them concerning this. A return of capital should be listed as a non taxable distribution on the 1099 and may already be there. If not ask the brokerage house why not. Other than that, as I began, you need to report your income as shown on the 1099 or you will raise all kinds of flags about your return at IRS.