- 23 -
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.
Page: Previous 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 NextLast modified: May 25, 2011