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modified, or extended after December 31, 1986. See 1986
Act, sec. 1134(e), 100 Stat. 2085, 2484.
Treatment of 1986 Loans
The principal issue in this case involves the treat-
ment of the 1986 loans. As discussed more fully below,
this issue turns on whether the 1986 loans were modified
or extended after 1986 such that they are subject to a
proposed regulation interpreting the level amortization
requirement of the 1986 Act.
The parties agree that at the time the 1986 loans were
made, they were not subject to treatment as distributions
under section 72(p)(1) because they qualified under the
exception set forth in section 72(p)(2). The 1986 loans
became subject to treatment as distributions later by
reason of petitioner's failure to make the payments
required by the notes. The parties differ on the time
the 1986 loans should be treated as distributions.
In formulating the revised deficiency, respondent
treated the 1986 loans as subject to the 1982 Act and
included the outstanding balance of the 1986 loans as of
December 31, 1991, as a taxable distribution of plan assets
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