Constructive Dividends

An Internal Revenue Code term used to explain dividends received under certain conditions or criteria. It is commonly used with the economic substance principle.

Constructive Dividends – Definition, Understanding and Application

When a corporation confers an economic benefit upon a shareholder, in his capacity as such, without an expectation of reimbursement, that economic benefit becomes a constructive dividend, taxable as such.   See INTERNAL REVENUE SERVICE NATIONAL OFFICE FIELD SERVICE ADVICE MEMORANDUM FOR DISTRICT COUNSEL, Number 200011003 dated October 27, 1999; specifically Page 4, 3rd paragraph.

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