What is the significance of a constructive dividend?

A.

A constructive dividend is a distribution by a regulated investment company realized from the sale of investments. Such dividends also include any undistributed capital gains allocated to shareholders by such companies.

B.

A constructive dividend is a dividend that is given some other label by the parties. For example, a dividend may be called compensation. Such amounts are reclassified as dividends for tax purposes. Thus, the deduction for compensation would be disallowed if a payment were reclassified as a dividend.

C.

A constructive dividend is a dividend that is given some other label by the parties. The only type of constructive dividends are payments involving shareholder-employee compensation payments. A corporation may not deduct dividends paid to shareholders, but is permitted to deduct reasonable compensation.

D.

Constructive dividends are distributions to shareholders that are taxable as dividends only to the extent they are made from either the corporation's current earnings and profits or accumulated earnings and profits. Distributions in excess of current and accumulated earnings and profits are treated as a taxable recovery of capital. Distributions in excess of the basis of stock are classified as ordinary income.