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A prohibited transaction may be corrected by “undoing the
transaction to the extent possible, but in any case placing the
plan in a financial position not worse than that in which it
would be if the disqualified person were acting under the highest
fiduciary standards.” Sec. 4975(f)(5). Where the prohibited
transaction is the lending of money, the disqualified person may
correct the transaction by repaying the principal plus reasonable
interest. See Medina v. Commissioner, 112 T.C. 51, 55 (1999).
Petitioner’s partial repayment did not correct the transactions.
Therefore, the second-tier excise tax is also applicable.
II. Preclusion
Petitioner contends that, following the criminal and
bankruptcy cases, respondent’s determinations “represent double
jeopardy”, and “no additional issues should arise.” We disagree.
The criminal case, the bankruptcy case, and the company’s section
4971 deficiency do not relate to petitioner’s loans. See United
States v. Beaty, 147 F.3d 522 (6th Cir. 1998) (stating that
double jeopardy protection applies to successive punishments for
the same crime and taxes do not constitute criminal punishment).
Consequently, we conclude that petitioner’s contention is
meritless, and respondent is not precluded from assessing the
deficiencies and additions.
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Last modified: May 25, 2011