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loans are repaid is an additional distribution pursuant to
section 72(p)(1).9
For clarity, we will address separately the applicability of
section 72(p)(1)(A) to the principal and accrued interest of the
plan loans. Petitioners do not dispute that the distribution of
the $75,000, i.e., the principal of the plan loans, if it is
taxable to them at all, is taxable in 1988, pursuant to the
legislative history of section 72(p) as interpreted by
respondent. Accordingly, we sustain respondent's determination
that the Chapmans and the Christies each received a distribution
from the Plan in the amount of $37,500 in 1988.10
We are not convinced, however, that Congress intended that
interest accruing during or after the 5-year period be treated as
a taxable distribution for purposes of section 72(p)(1).
Respondent's argument relies upon the fiction that the accrued
interest constitutes an additional loan. From the language of
section 72(p)(1), it is apparent that, to be a taxable
distribution, the loan amount must be received either directly or
9Respondent's argument assumes that Milo Chapman and David
Christie were participants in the Plan and that the Plan loans
otherwise satisfied the requirements of the exception in sec.
72(p)(2)(A). Petitioners do not challenge these assumptions.
10There seems to be a gulf between the language of the
statute and the legislative history. In other circumstances, we
might be concerned about this disparity, which indicates
legislation by conference report rather than by concise
statements in the statute. Taxpayers should not be compelled to
look at legislative history to determine the tax consequences of
their activities.
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