Milo G. and Sarah E. Chapman, et al. - Page 24

                                                - 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.                                       

Page:  Previous  13  14  15  16  17  18  19  20  21  22  23  24  25  26  27  28  29  30  31  32  Next

Last modified: May 25, 2011