Milo G. and Sarah E. Chapman, et al. - Page 23

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            indirectly by the participant or beneficiary.  The accrued                                   
            interest does not satisfy the requirement that the loan must be                              
            received to be a distribution.  Accordingly, we find that for                                
            purposes of section 72(p)(1) neither Milo Chapman nor David                                  
            Christie received distributions in 1988 or 1989 equal to the                                 
            interest in the amounts of $4,500 and $1,500 which accrued on the                            
            plan loans.                                                                                  
                  Section 72(t)(1) imposes an additional 10-percent income tax                           
            on amounts received from a qualified retirement plan.                                        
            Petitioners do not claim to come within one of the enumerated                                
            exceptions of section 72(t)(2).  We sustain respondent's                                     
            determination that the distributions of $37,500 are subject to                               
            the 10-percent additional income tax of section 72(t)(1).  Having                            
            decided, however, that the accrued interest amounts of $4,500 and                            
            $1,500 are not plan distributions, we find that section 72(t)                                
            does not apply to these amounts.                                                             
                        2.    Corporate Loans                                                            
                  We first consider whether the Chapmans and the Christies                               
            earned interest income in 1989 from the corporate loans to them.                             
            It is well settled that if a taxpayer's obligation is paid by a                              
            third party, the effect is the same as if the third party had                                
            paid the taxpayer who in turn paid his creditor.  Douglas v.                                 
            Willcuts, 296 U.S. 1 (1935); United States v. Boston & M.R.R.,                               
            279 U.S. 732 (1929); Old Colony Trust Co. v. Commissioner, 279                               
            U.S. 716 (1929); Wall v. United States, 164 F.2d 462 (4th Cir.                               

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