Can an unintentional accounting error still result in deemed distributed income?

A real estate investment company that had been subject to a tax audit had recorded debts owed to other creditors as a credit to its partner’s current account.

Following a tax audit,administration the company’s tax liability upward by the amount of these improperly recorded debts. They also assessed a tax liability on the shareholder, finding that he had received a hidden benefit, which was then deemed to constitute distributed income.

The Administrative Court of Appeals will rule that the entry in the partner's current account was an unintentional error on the part of the company.

She notes that this error did not result in a decrease in net assets and that the company’s reorganization is therefore not warranted.

However, with regard to the shareholder, the Court will find that the accounting error results in the shareholder receiving a benefit. Since this benefit is not recorded“as such,” the Court considers it to be a hidden benefit within the meaning of Article 111(c) of the General Tax Code.

She notes that this error has not been corrected and that the funds were therefore made available to the shareholder. These funds must therefore be considered deemed distributed income.

The shareholder's reinstatement is then approved.

CAA Nancy, Oct. 16, 2025, No. 23NC02405

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