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B. Tax Consequences of Loans
1. Plan Loans
First, we direct our attention to the income tax
consequences of the plan loans. Section 72(p)(1)(A) provides in
pertinent part that "If during any taxable year a participant
* * * receives (directly or indirectly) any amount as a loan
* * *, such amount shall be treated as having been received * * *
as a distribution under such plan." (Emphasis added.) Section
72(p)(2) carves out an exception permitting the tax-free
withdrawal of funds from a qualified plan by a plan participant,
in the form of a loan, if, inter alia, the terms of the loan
prescribe a repayment period of 5 years or less.
Respondent contends that the legislative history of section
72(p)(2) interprets the statute to provide that any unpaid
principal or interest is treated as distributed at the end of the
5-year period. The legislative history of section 72(p) states
in pertinent part: "if payments under a loan with a repayment
period of less than 5 years are not in fact made, so that an
amount remains payable at the end of 5 years, the amount
remaining payable is treated as if distributed at the end of the
5-year period." H. Conf. Rept. 97-760, at 619 (1982), 1982-2
C.B. 600, 672 (emphasis added). Respondent further argues that
any interest accruing after the 5-year period but before the
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