- 14 -
section 72(p)(2)(C) that was added to the Code by the 1986
Act applies to the 1986 loans because the loans were
modified after December 31, 1986. See 1986 Act, sec.
1134(e), 100 Stat. 2085, 2484. Petitioners further reason
that because the level amortization requirement applies to
the 1986 loans, the interpretation of section 72(p)(2)(C)
contained in a proposed regulation issued under the 1986
Act also applies to the loans. This proposed regulation
provides as follows:
Q-10. If a participant fails to make
installment payments required under the terms
of a loan that satisfied the requirements of
[section 72(p)(2)] when made, when does a deemed
distribution occur and what is the amount of the
deemed distribution?
A-10. (a) Timing of deemed distribution.
Failure to make any installment payment when due
in accordance with the terms of the loan violates
[the level amortization requirement of] section
72(p)(2)(C) and, accordingly, results in a deemed
distribution at the time of such failure * * * .
(b) Amount of deemed distribution. If a
loan satisfied [the requirements of section
72(p)(2)] when made, but there is a failure to
pay the installment payments required under the
terms of the loan * * *, then the amount of the
deemed distribution equals the entire outstanding
balance of the loan at the time of such failure.
[Sec. 1.72(p)-1, Q&A-10, Proposed Income Tax
Page: Previous 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 NextLast modified: May 25, 2011