- 9 - loan, by its terms, must be repaid within 5 years from the date of its inception or is made to finance the acquisition of a home which is the principal residence of the participant; and (3) the loan must have substantially level amortization with quarterly or more frequent payments required over the term of the loan. Section 72(p)(2) applies only to distributions that are intended to be loans. Respondent argues that the transfers from the Plan were taxable distributions and not loans. In support, respondent cites the following factors: In all cases in which the notes were signed, the notes were signed well after the transfers were made; petitioners presented no evidence, other than copies of the notes, that the Plan, the Plan administrator, the Plan trustee, or petitioners maintained any records reflecting the transfers as loans; any repayments on the notes, if in fact made, were insignificant; there was at no time a demand for repayment and no steps were taken to enforce the notes; neither petitioner had the ability to repay the transferred funds; and the notes were between related parties and the form of the transaction should not be honored where it lacks economic reality. In response, petitioners argue that sufficient "indicia of debt" are present to justify characterizing the transfers as loans. A transfer of money will be characterized as a loan for Federal income tax purposes where "'at the time the funds werePage: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Next
Last modified: May 25, 2011