- 20 - note to be altered to correct prohibited transactions. The modification of the original note is evidenced by the amount of interest that was paid to correct the prohibited transactions. Interest on the original note was "at the rate of 15 percent per annum, payable annually." * * * Interest paid in connection with the correction of the prohibited transactions was "interest at fifteen percent (15%) simple and nine percent (9%) compounded annually on the fifteen percent (15%) simple interest." * * * The modification of the loan to cor- rect the prohibited transaction requires the applica- tion of I.R.C. � 72(p)(3) to determine the nature of the interest paid during 1991. The interest is simply not deductible pursuant to I.R.C. � 72(p)(3). On the record before us, we find that respondent has failed to establish that the 1991 settlement modified the 1982 plan loan within the meaning of the 1986 Act effective date provisions. The 1982 note provided that interest on the 1982 plan loan was to be paid annually at the rate of 15 percent per year, and the 1991 settlement provided for "repayment of the outstanding [1982 plan] loan balance, principal plus interest," consisting of 15-percent simple interest and 9-percent interest compounded annually on the 15-percent simple interest. However, the provision in the 1991 settlement for 9-percent compound interest did not modify the terms of the 1982 plan loan or the 1982 note evidencing that loan; it merely effected the correction of the "prohibited" 1982 plan loan, which the parties to the 1991 settlement agreed was required by section 4975(f)(5), by undoing the transaction [the 1982 plan loan] to the extent possible, but in any case placing the [Hickman corporation profit-sharing] plan in a financial posi- tion not worse than that in which it would be if thePage: Previous 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 Next
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