If a corporation has a high debt-to-equity ratio, the IRS may reclassify deductible interest payments as nondeductible dividends.

Name: If a corporation has a high debt-to-equity ratio, the IRS may reclassify deductible interest payments as nondeductible dividends.
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If a corporation has a high debt-to-equity ratio, it may be considered "thinly capitalized" and the IRS may reclassify deductible interest payments as nondeductible dividends. This is known as the "debt-equity recharacterization rule."

If a Corporation Has a High Debt-To-Equity Ratio, the IRS