Constructive Dividend

Constructive Dividend

Constructive Dividend means:
the disallowance or reclassification of a transaction between a closely held corporation and a shareholder. A revenue agent will reclassify a corporate expense into a nondeductible disguised dividend. A constructive dividend may occur in the following situations:

1. thin capitalization.

2. shareholder use of corporate-owned property 3- certain loans to a shareholder.

4. unreasonable compensation.

5. bargain rental of corporate property.

6. corporate payment of a shareholder obligation.

7. bargain sale of corporate property to a shareholder.

U.S. and other Developed Countries International Tax Meaning

A variety of payments whether in cash or in kind made by companies to shareholders or associated persons, which are not expressed as dividends, may nevertheless be regarded by the tax law as distributions of profits and treated for tax purposes as if they were dividends.

See Dividend in the American Legal Encyclopedia and Dividend in the World Legal Encyclopedia.


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