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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 the
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