Dividends

[Taxman]

I have a client who is the 100% shareholder of a C-Corp. The client has owned the C-Corp for 6 years and in 2006 took a cash distribution from the C-Corp of about $40,000. Instead of treating the distribution as a loan the client would like to treat the amount as a dividend. Could this type of dividend be treated as a qualified dividend?

[dsi]

I believe so, but let's see what others have to say.

[OldJack]

I have a client who is the 100% shareholder of a C-Corp. The client has owned the C-Corp for 6 years and in 2006 took a cash distribution from the C-Corp of about $40,000. Instead of treating the distribution as a loan the client would like to treat the amount as a dividend. Could this type of dividend be treated as a qualified dividend?

Yes it is a qualified dividend qualifying for the capital gains max tax rate calculated on 1040 Sch-D. I expect your client knew that and was the reason he took the taxable dividend. If you had treated it as a loan the IRS, on audit, would probably have treated it as a taxable dividend unless the loan to the shareholder had some property as security. Of course you prepared the 1099DIV for the dividend that he took.

[Taxman]

Thanks

We didn't treat it as a loan because if the IRS were to take a look at it they would treat it as a dividend. So he took his lumps and is paying the taxes on the dividend now. Yes a 1099 Div is issued. Thanks again