Gideon L. and Corazon P. Medina - Page 1

                                   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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