112 T.C. No. 6
UNITED STATES TAX COURT
GIDEON L. MEDINA AND CORAZON P. MEDINA, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 18999-97. Filed February 22, 1999.
H and W, who were both disqualified persons within
the meaning of sec. 4975, I.R.C., borrowed $340,000
from the qualified pension plan of H's wholly owned
corporation. H and W did not make any payments of
interest or principal relating to the loan and did not
file excise tax returns.
1. Held: Sec. 4975, I.R.C., applies to a loan,
even though such loan, pursuant to sec. 72(p), I.R.C.,
was treated as a distribution.
2. Held, further, H and W did not correct, within
the meaning of sec. 4975, I.R.C., the prohibited
transaction and, pursuant to sec. 4975(a) and (b),
I.R.C., are liable for both tiers of excise taxes.
3. Held, further, the "amount involved", on which
the sec. 4975 excise taxes are based, is equal to the
greater of interest paid or fair market interest
relating to the loan. Because H and W did not make any
payments of interest, the amount involved is the fair
market interest.
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