- 24 -
1947). Petitioners concede that Dura-Craft and Springbrook owed
interest to Milo Chapman and David Christie in the amounts of
$33,000 and $14,000 on their respective corporate loans. Instead
of paying the interest directly to the individual petitioners,
the corporations paid the Plan. Having found that petitioners
may not disavow the loans, we must also conclude that the $47,000
in interest owed by the corporations to Milo Chapman and David
Christie was paid to the Plan for their benefit and used to
satisfy their own obligations with respect to the personal loans
to them from the Plan. Accordingly, we sustain respondent's
determination that the Chapmans and the Christies each received
interest income in the amount of $23,500 in 1989.
Finally, we must determine whether Milo Chapman and David
Christie received dividend income in 1989 to the extent that the
loan payments made by Dura-Craft and Springbrook exceeded the
amounts actually owed to Milo Chapman and David Christie.11
Petitioners contend that the excess loan payments should not be
treated as dividends because those payments were bookkeeping
errors, which should be corrected pursuant to section 4975(f)(5).
Section 4975(f)(5) defines the terms "correction" and "correct"
to mean "with respect to a prohibited transaction, undoing the
transaction to the extent possible, but in any case placing the
plan in a financial position not worse than that in which it
11We note that petitioners did not argue that the dividends
exceeded the earnings and profits of the corporations.
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