Clayton W. Plotkin - Page 11




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               loan balance through the use of balloon repayment                      
               obligations * * * from third parties.  [H. Rept. 99-                   
               426, at 735 (1985), 1986-3 C.B. (Vol. 2) 1, 735; S.                    
               Rept. 99-313, at 618 (1986) 1986-3 C.B. (Vol. 3) 1,                    
               618; Emphasis added.]                                                  
          Accordingly, we hold that the balloon payment provision which               
          petitioner requests we incorporate into the promissory note would           
          cause the loan to violate the requirements of section                       
          72(p)(2)(C).                                                                
               3.   Conclusion as to Section 72(p)                                    
               If we were to interpret the promissory note according to its           
          express provisions, then petitioner’s loan would violate the 5-             
          year repayment requirement of section 72(b)(2)(B)(i).  If we                
          incorporate into the promissory note a provision calling for a              
          balloon payment at the end of the fifth year of the loan, then              
          the loan fails to provide for substantially level amortization as           
          required by section 72(b)(2)(C).  Thus, under either possible               
          interpretation of the promissory note, petitioner’s loan fails to           
          qualify for the section 72(p)(2) exception.  The loan therefore             
          constitutes a taxable distribution pursuant to section                      
          72(p)(1)(A).                                                                
          B. Tax on Early Distributions                                               
               Section 72(t)(1) provides for a 10-percent additional tax on           
          early distributions from a qualified pension plan.  See Chapman             
          v. Commissioner, T.C. Memo. 1997-147.  Section 72(t)(2) sets                
          forth specific exemptions.  Petitioner does not argue that any of           
          the statutory exceptions applies to him.  Accordingly, we sustain           




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