Milo G. and Sarah E. Chapman, et al. - Page 17

                                                - 17 -                                                   
                  Petitioners' assertion that they used Milo Chapman and David                           
            Christie as intermediaries to avoid the excise tax of section                                
            4975 is untenable.  Petitioners now are bound by the form of the                             
            loans that they have chosen and may not in hindsight recast the                              
            transaction in another form.  Don E. Williams Co. v.                                         
            Commissioner, 429 U.S. 569 (1977); Commissioner v. National                                  
            Alfalfa Dehydrating & Milling Co., supra; Lomas Santa Fe, Inc. v.                            
            Commissioner, 693 F.2d 71, 73 (9th Cir. 1982), affg. 74 T.C. 662                             
                  Petitioners seek to circumvent the above outcome by relying                            
            upon examples 3, 5, and 6 found in 29 C.F.R. sec. 2550.408b-                                 
            1(a)(4) (1989), which they contend support treating the plan                                 
            loans as prohibited transactions rather than as participant                                  
            loans.  These examples provide in pertinent part:                                            
                  Example (2): P is a plan covering all the employees of                                 
                  E, the employer who established and maintained [the                                    
                  plan] P.  F is a fiduciary with respect to P and an                                    
                  officer of E.  The plan documents governing P give F                                   
                  the authority to establish a participant loan program                                  
                  in accordance with section 408(b)(1) of the [Employer                                  
                  Retirement Income Security Act of 1974] Act.  Pursuant                                 
                  to an arrangement with E, F establishes such a program                                 
                  but limits the use of loan funds to investments in a                                   
                  limited partnership which is established and maintained                                
                  by E as general partner.  Under these facts, the loan                                  
                  program and any loans made pursuant to this program are                                
                  outside the scope of relief provided by section                                        
                  408(b)(1) because the loan program is designed to                                      
                  operate for the benefit of E.  Under the circumstances                                 
                  described, the diversion of plan assets for E's benefit                                
                  would also violate sections 403(c)(1) and 404(a) of the                                
                  Example (3): Assume the same facts as in Example 2,                                    
                  above, except that F does not limit the use of loan                                    

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