In late 2007, the board of directors adopted the following: Salary payments made to an officer of the corporation that shall be disallowed in whole or in part as a deductible expense for Federal income tax purposes shall be reimbursed by such officer to the corporation to the full extent of the disallowance. It shall be the duty of the board of the directors to enforce payment of each such amount. In 2008, Osprey Corporation paid Patrick $560,000 and dan $400,000. in 2011, the IRS found compensation excessive and disallowed deductions for Patrick for $200,000 and $150,000 for Dan. The IRS recharacterized the disallowed payment as constructive dividends.Both repaid the disallowed compensation to Osprey in early 2012. Both have asked to me determine how their repayments should be treated for tax purposes. Dan is still working as a highly compensated executive while Patrick is retired and living off his savings.