Return of Capital Dividend - Pass Through Dividend Plan

Have a publicly traded C Corp ESOP Plan that has been doing your regular run of the mill Dividend Pass through process for awhile now on their quarterly cash dividend.  Was recently notified that last year they filed multiple 8937's and the dividends for the past year were actually Return of Capital Cash Dividends.  Never had this occur in any of my C Corp Plans in 25+ years of ESOP Administration.  What impact would this have on the Dividend Pass through process if any?  Is this type of Dividend even eligible for the 404(k) deduction and to be passed through to participants?

Client is asking what our process would be to amend the 1099R's for 2023, given that Return of Capital Dividends are non-taxable and reduce basis I believe.  2024's tax history can still be modified at this point.  The Dividends paid quarterly are well below the stock basis on file for each participant. 

Anyone have any thoughts on this?

If these payments are not dividends under the Internal Revenue Code, then they’re not covered by Section 404(k), which governs deduction of dividends for shares owned by an ESOP sponsored by a C corp. Accordingly, the payments would not be deductible if they’re not dividends.  In this case, another issue is whether they should have been paid to the ESOP, which is the shareholder (not the participants) and, correspondingly, was there an impermissible in-service distribution not authorized under the terms of the ESOP plan?  The pass through payment for dividends plan provision likely would not apply.  The plan sponsor should consult with an ERISA-ESOP attorney about a correction process.