constructive dividend

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Constructive Dividend

In American taxation, any payment to a shareholder that is not classified as a dividend by the company. The IRS treats these payments as dividends and taxes them as such. Constructive dividends are most common in closely-held corporations in which shareholders are often also employees or landlords of the company. For example, if a company rents its offices from a shareholder and pays in excess of the offices' fair market value, then the IRS considers the company's rent (or a portion of it) as a constructive dividend. Unlike business expenses, which are tax-deductible, constructive dividends are taxable. Thus, the company from the example will not be able to write off its rent like most other companies do.

constructive dividend

A corporate payment to a stockholder that is characterized by the Internal Revenue Service as a dividend distribution even though the corporation calls it something else. For example, a small firm may pay an employee who is also a stockholder an excessive salary so that the payment can be used as a tax-deductible expense rather than as an aftertax dividend payment. The IRS may determine that part of the payment is a constructive dividend and then disallow it as a tax-deductible expense.
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Therefore, a greater potential for disguised constructive dividends exists.
Among the issues were loans by Caspian to Morrison and other shareholders that the IRS said were taxable constructive dividends.
The collateral or repayment-triggered constructive dividends are generally of the type subject to amelioration or elimination under Rev.
The seminal case on constructive dividends in intercorporate transfers is Rushing.
Constructive dividends do not have to be declared formally or designated as a dividend.
Menard were each due a credit of $196,845, the amount of Medicare taxes each paid on the wage income now recharacterired as constructive dividends.
4) The IRS argued, in the alternative, that the takeover-related expenses constituted nondeductible constructive dividends to NSC's shareholders.
However, the court stated it had not held in any of these cases that the constructive dividends should include forgone profits.
It should also be noted that if the taxpayer had shown that the loan was his, the interest payments made by the corporation to the bank on his behalf would be constructive dividends.
The notices raised several issues, the most significant of which was whether loans made by Caspian to its shareholders, including Morrison, in 1999 and 2000 were taxable as constructive dividends.
Menard owed tax on certain expenses paid by the corporation on his behalf that were constructive dividends to him.
Read and the corporation indicating the principal and interest were constructive dividends to Mr.

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