Constructive Dividend

Disallowance or reclassification of a transaction between a Closely Held Corporation and a shareholder. Frequently a loan to a stockholder is recharacterized as a dividend.

Tax concept in which a stockholder is considered to have constructively received a dividend although it was not actually paid by the company. For example, a shareholder who used company property for personal purposes rent-free might be considered to have received a constructive dividend equal to the fair market rental value of that property.