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loans were deemed to be distributions for purposes of
section 72(p). Respondent maintains that such amounts are,
in effect, additional loans from the plan which must be
treated as distributions pursuant to section 72(p)(1)(A).
We faced a similar question in Chapman v.
Commissioner, T.C. Memo. 1997-147. The taxpayers in that
case received loans from a qualified employer plan which
respondent treated as deemed distributions pursuant to
section 72(p) under the 1982 Act and the conference report
cited above. Respondent also treated the interest that
accrued during the 5-year repayment period, as well as
the interest that accrued thereafter, as additional
distributions under section 72(p).
In holding that none of the interest was properly
treated as a taxable distribution, we stated:
We are not convinced * * * that Congress
intended that interest accruing during or after
the 5-year period be treated as a taxable
distribution for purposes of section 72(p)(1).
Respondent's argument relies upon the fiction
that the accrued interest constitutes an
additional loan. From the language of section
72(p)(1), it is apparent that, to be a taxable
distribution, the loan amount must be received
either directly or indirectly by the participant
or beneficiary. The accrued interest does not
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