Douglas R. and Jane E. Prince - Page 7

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          Yorkville building but disallowed the interest expense claimed by           
          petitioners.                                                                
               Prior to and continuing through the relevant taxable years,            
          the corporation maintained the Douglas R. Prince, D.D.S., M.S.,             
          P.C. Pension Plan and Trust (the pension plan), in which                    
          petitioner was a participant.  The pension plan was a qualified             
          trust within the meaning of section 401(a).                                 
               On or about March 14, 1986, the pension plan made a loan in            
          the amount of $50,000 to petitioner (the original loan).  The               
          original loan, which was secured by petitioner's vested benefit             
          in the pension plan, was to be repaid on April 1, 1988, with                
          interest at the rate of 13.75 percent per annum.  On the due date           
          of the original loan, the principal and interest on the original            
          loan were not paid but were instead rolled over into a new loan             
          (the renewed loan).  Neither the original loan nor the renewed              
          loan contained a provision for "level amortization" of the                  
          principal.  At all relevant times, the present value of one-half            
          of petitioner's "accrued benefit" under the pension plan exceeded           
          $100,000.                                                                   
               Petitioners did not include the original loan or the renewed           
          loan in their gross income on their Federal income tax returns              
          for the years in issue.  Respondent determined that the renewed             
          loan did not provide for "level amortization" as required by                
          section 72(p)(2)(C) and concluded that the renewed loan did not             
          qualify for the section 72(p)(2)(A) exception.  Consequently,               




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