Constructive Dividend Doctrine from an Integrationist Perspective

Abstract

A long standing feature of U.S. corporate taxation is a group of doctrinal devices serving to prevent taxpayer attempts to avoid double taxation of corporate earnings. These devices, referred to collectively as the constructive dividend doctrine (“CDD”) are predicated on a perspective under which corporate income is to be subject to double taxation. A contrasting perspective is one in which all income derived from a business enterprise would be taxed exactly once (the “Integrationist Norm”). Under such an idealized Integrationist Norm, all income would be imputed to individuals connected with the corporate enterprise - as shareholders or otherwise - as earned, and all income would be taxed at the individual rate schedules. This Article examines the CDD in light of the Integrationist Norm. Elsewhere, in an article entitled Advancing to Corporate Tax Integration: A Laissez-Faire Approach, I advanced the proposition that although systematic corporate tax integration is unlikely to be enacted in the foreseeable future, integrationism should be regarded as normative. The Laissez-Faire Approach proposes that, to the extent that legal mechanisms serve to prevent self-help corporate tax integration, they are counterproductive, wasting valuable taxpayer, IRS, and judicial resources. This Article analyzes the CDD in light of the Laissez-Faire Approach in order to identify circumstances in which it is best to dispense with the CDD as a counter productive mechanism that wastes resources reinforcing the double tax anti-ideal.