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In 1990, Edberg prepared a loan policy for the plan which
was adopted by petitioner as the sole member of the plan’s
Advisory Committee. Pursuant to the policy, a plan participant
could apply for a loan in an amount not to exceed one-half of the
participant’s nonforfeitable accrued benefit. The maximum
aggregate dollar amount of loans outstanding to any one
participant, when aggregated with all participant loans from
other employer qualified plans, could not exceed $50,000.2 All
loans were subject to approval by the plan’s Advisory Committee.
In November 1994, petitioner’s nonforfeitable accrued benefit in
the plan was $74,376. There is no evidence that he had
previously borrowed from the plan.
With respect to loans the proceeds of which were to be used
by a plan participant to acquire a dwelling that the participant
would use as his principal residence, the loan policy permitted a
repayment term of up to 15 years. With respect to all other
loans, the repayment term could not exceed 5 years. The loan
policy specifically provided as follows:
Participants should note the law treats the amount
of any loan (other than a “home loan”) not repaid five
years after the date of the loan as a taxable
distribution on the last day of the five year period
or, if sooner, at the time the loan is in default. If
2 The $50,000 figure was required to be reduced by the
excess of the participant’s highest outstanding loan balance
during the 12-month period ending on the date of the loan over
the participant’s current outstanding loan balance on the loan
date.
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