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OPINION
A. Loans From the Plan
Generally, when a participant receives a loan from a
qualified plan, the amount is considered a taxable distribution.
See sec. 72(p)(1)(A). Section 72(p)(2)(A) provides that if the
aggregate balance of all outstanding loans from the plan is less
than a prescribed ceiling, which may never exceed $50,000, the
loan will not be treated as a distribution. However, a loan will
be a taxable distribution if the loan is not a home loan and, by
its terms, does not require repayment within 5 years. See sec.
72(p)(2)(B).
The loans at issue, by their terms, require 999 payments
deducted biweekly from petitioner’s paycheck. According to the
payment schedule, it would take petitioner 38.42 years to fully
repay the loans. Petitioner has not argued or shown that the
loans served to finance the acquisition of a home used as his
principal residence. Therefore, the loan proceeds received by
petitioner in 1997 are distributions.
Petitioner contends, in the alternative, that the
distributions represent, in part, a return of his contributions
and to that extent are not includable as income. Section
72(o)(1) provides that any deductible employee contribution made
to a qualified employer plan shall be treated as an amount
contributed by the employer which is not includable in the gross
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Last modified: May 25, 2011