Which of the Following Items Might an IRS Agent Seek

question 80

Multiple Choice

Which of the following items might an IRS agent seek to recharacterize as a constructive dividend?

• A)Payment of interest expense to a corporate shareholder,where the loan bears interest at a market rate,has fixed written terms with a repayment required at a defined future point,and the corporation is not thinly capitalized.
• B)Payment of salary expense to a corporate shareholder's wife,where the wife performs no services for the corporation.
• C)Payment of rental expense to a corporate shareholder,for the use of equipment owned by the shareholder.The equipment is necessary to the corporate business,and the rental cost is similar to that charged by unrelated equipment providers.
• D)All of the above payments could reasonably be considered constructive dividends.

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Definitions:

Debt Financing

The practice of borrowing funds from external sources, typically through loans or bonds, to finance business activities.

Issuing Bonds

The act of a corporation or government borrowing money from investors by selling debt securities, known as bonds, which promise to repay the principal along with interest on specified dates.

Leasing Agreement

A contract where one party agrees to rent property owned by another party for a specified time period in exchange for payment.

Capital Markets

Financial markets in which long-term debt or equity-backed securities are bought and sold, serving as a platform for raising capital.