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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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Last modified: May 25, 2011