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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Constructive dividends result in an unintended and unfavorable recharacterization by the IRS of a corporate-shareholder transaction as a dividend.
12) Thus, under such a factual scenario, the amount of the constructive dividends as imputed from the Florida corporation and as based on the Key Biscayne property would have correspondingly been reduced.
The court also found that DKD's payments to Dursky for the expenses of the cattery, funding of the pension plan, and medical payments were constructive dividends and, thus, were all taxable to her.
The court also found that since the company here had sufficient earnings and profits to characterize the contributions as dividends, the contributions to the 419 plan could be taxed as constructive dividends under IRC Section 301(c).
Where the widow is a controlling stockholder, the payments may very likely be treated as constructive dividends.
Among the issues were loans by Caspian to Morrison and other shareholders that the IRS said were taxable constructive dividends.
107) The court remanded the case for a determination of whether those payments were in fact constructive dividends and thus violated the rule of Donahue and Ahmanson because they were not made available to Muir.
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.
Therefore, a greater potential for disguised constructive dividends exists.
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.
However, such loans are often characterized as constructive dividends by the IRS.

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