Sarah, a sole shareholder, rents property to her corporation.The rent income she receives from the lease is a constructive dividend to Sarah.

Question

Quizplus · Accepted Answer

The rent income Sarah receives from leasing property to her corporation is considered rental income to her, not a constructive dividend, as long as the transaction is conducted at fair market value and follows an arm's length principle. Constructive dividends typically occur when a corporation confers a benefit on a shareholder without the expectation of repayment, not in a legitimate, arm's-length rental transaction.

Sarah, a Sole Shareholder, Rents Property to Her Corporation