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hi Im Jeff Louisville a staff accountant with a a accounting and today were discussing how to avoid constructive dividends on shareholder loans shareholders of closely held corporations often have the problem of deciding how to get the profits out of a corporation without paying taxes on the distribution this is because generally transfers of cash or property from a corporation to its shareholders are treated as dividends and are taxable to the shareholders as income some shareholders would like to treat these distributions as loan repayments since thats one way to avoid double taxation of the income the IRS in response has developed rules for defining what is a bonafide shareholder loan if the IRS under audit determines that a distribution is not actually a bona fide loan repayment it will reclassify the payment as a taxable distribution called a constructive dividend to avoid this the shareholders should create a valid loan agreement which is written signed by both parties and no
