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Most, if not all, of these notes were prepared after the
corresponding transfers, and the May 31, 1992, note is not
signed. Wayne did not report any income with respect to these
transfers.
Each of petitioners' promissory notes contains the following
terms: Repayment of principal with interest from date of
transfer at a rate of 10 percent per annum; and payment in equal
monthly installments commencing approximately 1 month after the
date of each transfer until the earlier of repayment of principal
and interest in full or 5 years from the date of the transfer.
As security for each transfer, petitioners pledged their
respective vested account balances. The record does not disclose
the amounts of these balances at any time that is relevant
herein.
During 1993 and 1994, Wayne maintained an IRA with Merrill
Lynch. He received $9,000 from this account in 1993 and $9,307
in 1994. He did not report any income with respect to these
amounts.
OPINION
We must decide whether the funds received by petitioners
from their retirement accounts are includable in their gross
incomes. Petitioners argue that the transfers from the Plan are
loans from the Plan and nontaxable to the extent of $50,000 for
each petitioner. Petitioners concede that the transfers over
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