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"[T]he phrase 'purposes other than for the exclusive benefit of
his employees or their beneficiaries' includes all objects or
aims not solely designed for the proper satisfaction of all
liabilities to employees or their beneficiaries covered by the
trust." Sec. 1.401-2(a)(3), Income Tax Regs.
Petitioner contends that, with Morrissey as the sole trustee
and sole participant of the Defined Benefit Plan since 1990,
there is no violation of the exclusive benefit rule. In support
of its contention, petitioner asserts that two of three Defined
Benefit Plan participants were paid their benefits in full in
1990. Thus, petitioner asserts that the sole remaining
participant, Morrissey, controls the Defined Benefit Plan and his
retirement and could arrange for the plan to have liquid assets
by repaying the loans to him at any time since he had assets with
which to accomplish this.
In addition, petitioner contends that the prudent investor
rules, a safe harbor when dealing with the exclusive benefit
issue, have not been violated. In support of its contention,
petitioner asserts that Morrissey, the trustee, weighed the risks
and benefits of making loans to Morrissey, the individual.
Petitioner further asserts that if the loans turned out to be a
bad investment for the Defined Benefit Plan, the only party who
is harmed is Morrissey, the sole remaining Defined Benefit Plan
participant. Accordingly, petitioner contends that Morrissey,
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