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Petitioner contends that the Defined Benefit Plan did not
violate the exclusive benefit rule and therefore should remain
qualified. Respondent contends that the Defined Benefit Plan is
not a qualified plan within the meaning of section 401(a) for
plan year ended October 31, 1990, and thereafter because its
investments and Morrissey's transfer of real property, on October
19, 1990, in an attempt to repay loans to him, violated the
exclusive benefit requirement. Specifically, respondent contends
that the Defined Benefit Plan failed to satisfy the exclusive
benefit rule by investing almost all of its assets in 23 loans to
the plan trustee.9
Section 404(a)(1)(A) provides that contributions to a
pension trust are deductible by the employer if the trust is
exempt from tax under section 501(a). In order for the trust to
be entitled to tax-exempt status under section 501(a), a
retirement plan must be established by an employer and meet all
the requirements of section 401(a). See Professional & Executive
9Respondent seems to think that the Defined Benefit Plan and
the Money Purchase Plan are one plan, as it appears respondent
has combined the loans from both plans. See supra note 1. We
previously found that from Nov. 14, 1979, to Feb. 17, 1989, the
Defined Benefit Plan and Money Purchase Plan made 23 loans to
Morrissey. See Morrissey v. Commissioner, T.C. Memo. 1998-443.
In addition, we previously found that Morrissey transferred to
the Money Purchase Plan his 50-percent interest in two parcels of
unencumbered real estate and that he never transferred any value
to the Defined Benefit Plan to repay his loans from the Defined
Benefit Plan assets. See id.
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