Question

Which of the following payments could be treated as a constructive dividend by the IRS?

A) Rent paid to a shareholder/lessor.
B) Interest paid to a shareholder/creditor.
C) End-of-year bonus payment to a shareholder/employee.
D) All of these payments could be treated as a constructive dividend by the IRS.

Answer 1

A constructive dividend is a payment made by a corporation to a shareholder that is treated as a dividend by the IRS for tax purposes. Rent, interest, and end-of-year bonuses paid to shareholders can be treated as constructive dividends.

Step-by-step explanation:

A constructive dividend is a payment made by a corporation to a shareholder that is not formally declared as a dividend, but is treated as a dividend by the IRS for tax purposes. It can occur when a shareholder receives a benefit from the corporation that is not directly related to their ownership of shares.

In this case, all of the payments mentioned - rent paid to a shareholder/lessor, interest paid to a shareholder/creditor, and end-of-year bonus payment to a shareholder/employee - could be treated as constructive dividends by the IRS.