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mortgages; the trust invested in a tax-shelter partnership in
which one of the trustees acquired three loose diamonds, the
largest of which could not be located; and the plan disbursed
plan assets to nonparticipants without explanation. We found
under those circumstances that the trust's investment practices
violated the exclusive benefit rule. Accordingly, we upheld the
Commissioner's determination that the plan was no longer
qualified.
In Shedco, Inc. v. Commissioner, T.C. Memo. 1998-295, the
trustee of an employer-sponsored defined benefit pension plan
lent $2,250,000, representing approximately 90 percent of the
plan's assets, through an unsecured loan to a construction
company in which the trustee had served as executive vice
president until his retirement. The proceeds from the loan were
used for general working capital needs, and when the loan was
made, the construction company could have obtained funds from
several other sources. The trustee did not consult with counsel
or with the plan's actuarial firm about making the loan before
the plan lent the money to the construction company. The
construction company agreed orally to make semiannual principal
payments on the note of $250,000 each. It made two such
payments, and it made monthly payments of interest in accordance
with the terms of the note until it encountered problems in
Arizona's real estate economy. The construction company's
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