Gideon L. and Corazon P. Medina - Page 3

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               Unless otherwise indicated, all section references are to              
          the Internal Revenue Code in effect for the years in issue, and             
          all Rule references are to the Tax Court Rules of Practice and              
          Procedure.  The issues for decision are as follows:                         
               1.  Does section 4975 apply to a loan even though such loan,           
          pursuant to section 72(p), was treated as a distribution?  We               
          hold that it does.                                                          
               2.  Did petitioners, within the meaning of section                     
          4975(f)(5), correct the prohibited transaction?  We hold that               
          they did not.                                                               
               3.  What is the "amount involved" relating to a loan that is           
          subject to section 4975 excise taxes?  We hold that the "amount             
          involved" is the greater of the interest paid or the fair market            
          interest.                                                                   
               4.  In determining the "amount involved" relating to                   
          petitioners' loan, what is the fair market interest rate?  We               
          hold that the fair market interest rate is 10.5 percent.                    
               5.  Are petitioners, pursuant to section 6651(a), liable for           
          additions to tax for failing to file excise tax returns?  We hold           
          that they are.                                                              
                                     Background                                       
               The parties submitted this case fully stipulated pursuant to           
          Rule 122.  At the time the petition was filed, petitioners                  
          resided in Niles, Michigan.                                                 





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