Constructive Dividend IRS – Paul Gaukin CPA

puzzleIn some situations, a corporation may enter into a transaction that is not typically considered a dividend, but may be considered a dividend by the IRS. Constructive dividends do not need to be formally declared by the corporation or designated as a dividend.

All that is required according to the IRS is that a shareholder received some benefit from the corporation that was not paid for or reported on a Form W-2 or 1099. Since any benefit that was given to a taxpayer and not reported on a Form W-2 or 1099 is very broad, a constructive dividend can take many forms.

Constructive Dividend IRS

For the viewpoint of the IRS, there is no difference between a formal dividend and a constructive dividend. A dividend is not deductible by the corporation, and is taxable to the recipient shareholder to the extent of the corporation’s current or accumulated E&P. It can benefit both the taxpayer and corporation to try and pass off a dividend as something else in an attempt to lower a tax bill.

About Paul Gaulkin CPA

Paul Gaulkin is a Certified Public Accountant and enrolled with the U.S. Treasury to practice before the IRS. Mr. Gaulkin possesses unique technical knowledge in the process of securing relief for taxpayers nationwide with IRS and State tax problems. With an accounting degree from Florida International University, he is able to transform complex tax and accounting problems into easy to understand solutions.

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