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that the series of loans was not bona fide.7 The effect of
petitioners' recharacterization would be to relieve the Chapmans
and the Christies of any income tax consequences flowing from the
loans. In addition, petitioners seek to characterize the excess
interest payments made by the corporations to or on behalf of
Milo Chapman and David Christie as bookkeeping errors subject to
correction pursuant to section 4975(f)(5).
6(...continued)
Person.--There is hereby imposed a tax on each
prohibited transaction. The rate of tax shall be equal
to 5 percent of the amount involved with respect to the
prohibited transaction for each year (or part thereof)
in the taxable period. The tax imposed by this
subsection shall be paid by any disqualified person who
participates in the prohibited transaction (other than
a fiduciary acting only as such).
Sec. 4975(b) imposes an additional excise tax on the prohibited
transaction equal to 100 percent of the amount involved if the
transaction is not timely corrected. The prohibited transactions
enumerated in sec. 4975� were designed to guard against over-
reaching by persons able to exert influence over the affairs of
the plan. A prohibited transaction includes, inter alia, any
direct or indirect lending of money or other extension of credit
between a plan and a disqualified person. Sec. 4975(c)(1)(B).
Disqualified persons are defined in terms of certain
relationships a person has with a plan. Sec. 4975(e)(2). Those
relationships include, inter alia, fiduciary, sec. 4975(e)(2)(A);
an employer whose employees are covered by the plan, sec.
4975(e)(2)(C); an owner of 50 percent or more of a corporation
any of whose employees are covered by the plan, sec.
4975(e)(2)(E); a member of the family of any individual described
within certain paragraphs in sec. 4975(e)(2), sec. 4975(e)(2)(F);
and any officer or director of a corporation which, among other
things, has employees covered by the plan, sec. 4975(e)(2)(H).
7The parties stipulated that the Plan was a profit-sharing
plan, and neither party disputed that the Plan was a qualified
plan for purposes of sec. 401 or a qualified employer plan for
purposes of sec. 72(p).
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