Brad owns a successful corporation that has substantial earnings and profits. During the year, the following payments were made by the corporation:
a. Salary of $250,000 to Brad. Officers in other corporations performing similar services receive between $50,000 and $85,000
b. Rent of $25,000 to Brad. The rent is paid in connection with an office building owned by Brad and used by the corporation. Similar buildings rent for about the same amount.
c. Salary of $5,000 to Brad’s daughter, who worked for the company full-time during the summer and part-time during the rest of the year while she attended high school.
d. Alimony of $40,000 to Brad’s former wife. Although Brad was personally obligated to make the payments, he used corporation funds to make the payments.
Discuss the likelihood of these payments being treated as constructive dividends. If a payments is deemed to be a constructive dividend, indicate how such a payment will be treated.