| busin., tax. |
disguised dividends (Constructive or Disguised Dividends: A constructive dividend is an undeclared dividend by the Corporations Board of Directors. It can be defined as any payment to a shareholder which is not classified as a dividend by the company. These payments are considered dividend and are taxable. For instance, when a company rents its offices from a shareholder and pays in excess of the office's fair market value, the company' s rent is considered a constructive dividend. As a result, rent becomes a taxable expense and the company cannot write off the rent. Borrowed funds, lease payments, rental payments, or the personal use of corporate assets of a shareholder is characterized as a constructive dividend.
: Constructive or Disguised Dividends: It can be defined as any payment to a shareholder which is not classified as a dividend by the company. These payments are considered dividend and are taxable. • The Tax Court took the position that John Menard’s $20 million salary was really a disguised dividend because it was much greater than the salaries of the Home Depot and Lowe’s CEOs, who earned $2.8 million and $6.1 million respectively. • Last year, in Pediatric Surgical Associates, P.C. v. Commissioner, the U.S. Tax Court held that Pediatric Surgical Associates, P.C. (PSA) erroneously deducted a portion of bonuses paid to shareholder-employee surgeons as compensation, since such portion constituted disguised dividends. • If the IRS successfully recharacterizes compensation as disguised dividends, the business loses its tax deduction and incurs interest and penalties charges.  uslegal.com) |
