Milo G. and Sarah E. Chapman, et al. - Page 21

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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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