Ramon A. Garcia and Bertha E. Garcia - Page 25

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                  satisfy the requirement that the loan must be                       
                  received to be a distribution.  Accordingly, we                     
                  find that for the purposes of section 72(p)(1)                      
                  neither * * * [of the taxpayers] received                           
                  distributions in 1988 or 1989 equal to the                          
                  interest * * * which accrued on the plan loans.                     
                  [Chapman v. Commissioner, supra.]                                   

                  Furthermore, we note that in proposed regulations                   
             recently issued under section 72(p), the Department of                   
             Treasury takes the position, contrary to respondent's                    
             position in this case, that interest which accrues after                 
             a loan is deemed distributed under section 72(p) is not                  
             treated as an additional deemed distribution.  Section                   
             1.72(p)-1, Q&A-19, Proposed Income Tax Regs., 63 Fed.                    
             Reg. 42, 44 (Jan. 2, 1998), states in part as follows:                   

                  [A-19] deemed distribution of a loan is treated                     
                  as a distribution for purposes of section 72.                       
                  Therefore, a loan that is deemed to be                              
                  distributed under section 72(p) ceases to be                        
                  an outstanding loan for purposes of section                         
                  72, and the interest that accrues thereafter                        
                  under the plan on the amount deemed distributed                     
                  is disregarded in applying section 72 to the                        
                  participant or beneficiary.  Even though                            
                  interest continues to accrue on the outstanding                     
                  loan * * *, this additional interest is not                         
                  treated as an additional loan (and, thus, does                      
                  not result in an additional deemed distribution)                    
                  for purposes of section 72(p).  * * *                               












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