Constructive Dividend. Brad owns a successful corporation
that has substantial earnings and profits. During the year, the following
payments were made by the corporation :
a. Salary of $250,000 to Brad. Officers in other
corporations performing similar services receive between $50,000 and $85,000.
b. Rent of $25,000 to Brad. The rent is paid in connection
with an office building owned by Brad and used by the corporation . Similar
buildings rent for about the same amount.
c. Salary of $5,000 to Brad’s daughter, who wor ked for the
compa ny full-time during the summer and part -time during the rest of the year
while she attended high school.
d. Alimony of $40,000 to Brad’s former wife. Although Brad
was personally obligated to make the payments, he used corporat ion funds to
make the payments . Discuss the likelihood of these payments being created as
construct ive dividends. If a payment is deemed to be a construct ive dividend,
indicate how such a payment will be treated.
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