If the IRS reclassifies debt as equity under § 385, the repayment of the debt by the corporation to the shareholder automatically is treated as a dividend.

Name: If the IRS reclassifies debt as equity under § 385, the repayment of the debt by the corporation to the shareholder automatically is treated as a dividend.
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The reclassification of debt as equity under § 385 does not automatically treat repayments as dividends; it depends on the specific circumstances and the nature of the reclassification.

If the IRS Reclassifies Debt as Equity Under § 385