4.7 Dividends Paid in Property

A dividend may be paid in property such as securities of another corporation or merchandise. You report as income the fair market value of the property. A dividend paid in property is sometimes called a dividend in kind.

EXAMPLE
You receive one share of X corporation stock as a dividend from the G company of which you are a stockholder. You received the X stock when it had a market value of $25; you report $25, the value of the property received. The $25 value is also your basis for the stock.

Corporate benefit may be treated as constructive dividend.

On an audit, the IRS may charge that a benefit given to a shareholder-employee should be taxed as a constructive dividend. For example, the Tax Court agreed with the IRS that a corporation’s payment for a license that gave the sole shareholder the right to buy season tickets to Houston Texans football games was a constructive dividend.

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