Robert C. Geib - Page 5




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               The lending of money or other extension of credit between a              
          plan and a disqualified person generally is a prohibited                      
          transaction.  See sec. 4975(c)(1)(B).  The plan lent money to                 
          petitioner, who failed to make full repayment when due.  As a                 
          trustee, majority stockholder, president, and director,                       
          petitioner was a disqualified person.  See sec. 4975(e)(2);                   
          Rutland v. Commissioner, 89 T.C. 1137, 1145 (1987) (stating that              
          the determination of whether an individual is a disqualified                  
          person is made as of the time the loans originated).                          
               Section 4975(d) provides that any loan made by a plan to a               
          disqualified person who is a participant of the plan shall not be             
          prohibited if the loan meets certain criteria (e.g., if the loan              
          is available to all participants or beneficiaries on a reasonably             
          equivalent basis, is made in accordance with specific plan                    
          provisions regarding loans, and is adequately secured).  See sec.             
          4975(d)(1).  Petitioner’s loans do not meet the criteria because              
          the loans were not made in accordance with specific provisions                
          relating to the loans set forth in the plan (i.e., the loans were             
          made in excess of the plan’s amount limitations and without a                 
          Qualified Waiver of Spouse) and were not adequately secured.  See             
          sec. 4975(d)(1)(C), (E).  Therefore, petitioner’s loans were                  
          prohibited transactions to which the first-tier excise tax is                 
          applicable.                                                                   








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