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notes that (1) the loan policy adopted by the plan’s Advisory
Committee did not permit a repayment term in excess of 5 years
under the circumstances, (2) the board minutes authorizing the
loan required that the loan be paid off at the end of 5 years
through a balloon payment, and (3) petitioner instructed his
accountant to provide him with an amortization of the loan so
that he would know the proper amount of the necessary balloon
payment. Petitioner therefore requests this Court to treat the
promissory note as if it had been reformed to explicitly include
the 5-year balloon payment provision.6
We need not resolve the issue of whether petitioner’s loan
constitutes a taxable distribution under section 72(p)(1)(A)
based on the failure of the loan to meet the 5-year repayment
requirement of section 72(p)(2)(B). Even if we were to find (as
petitioner requests) that the loan, by its terms, was required to
be paid off in its fifth year through a balloon payment of the
then outstanding principal balance, the loan would fail to
satisfy the requirements of section 72(p)(2)(C). We discuss this
point below.
6 Petitioner contends that a court of equity could have
reformed the promissory note to comply with the intent of the
parties, citing Boone v. Grier, 688 P.2d 1070 (Ariz. App. 1984).
Petitioner argues that formal reformation of the note was not
necessary in this context, because petitioner treated the note as
so reformed in both his capacity as plan trustee and plan
participant/obligor.
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