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When a corporation does not formally declare a dividend, a
distribution of property by a corporation may constitute a
constructive dividend. Truesdell v. Commissioner, 89 T.C. 1280,
1295 (1987). Distributions are constructive dividends when a
corporation provides a direct benefit to the taxpayer without an
expectation of repayment. Neonatology Associates, P.A. v.
Commissioner, 299 F.3d 221, 231-232 (3d Cir. 2002), affg. 115
T.C. 43 (2000); Hood v. Commissioner, 115 T.C. 172, 179 (2000)
(quoting Magnon v. Commissioner, 73 T.C. 980, 993-994 (1980));
Truesdell v. Commissioner, supra. Although not every payment
that has incidental benefit to the shareholder is considered a
constructive dividend, a payment will constitute a constructive
dividend when “‘the distribution was primarily for the benefit of
the shareholder.’” Hood v. Commissioner, supra at 179-180
(quoting Loftin & Woodard, Inc. v. United States, 577 F.2d 1206,
1214 (5th Cir. 1978)).
In addition to distributions of property, shareholders may
receive constructive dividends when they use corporate property
for personal purposes. “[I]f shareholders of a corporation use
corporate-owned property for personal purposes, they will be
charged with additional distributions from the corporation,
taxable to them as constructive dividend income if the
corporation has sufficient earnings and profits.” Melvin v.
Commissioner, 88 T.C. 63, 79 (1987), affd. 894 F.2d 1072 (9th
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