- 9 -
Petitioner’s loan repayments are also not included in his
“investment in the contract”. Petitioner’s prior loans from his
TESPHE account were not deemed distributions and were not
includable in his taxable income for any of the respective
taxable years. See sec. 72(p). Therefore, petitioner’s loan
repayments merely restored petitioner’s TESPHE account to the
same status it had prior to the loan transactions; i.e.,
receiving the loan amounts and repaying the loan principal
amounts produced a wash with respect to petitioner’s TESPHE
account. To give petitioner an “investment in the contract” for
the loan repayments would allow petitioner to create an
“investment in the contract” from his previously nontaxable loan
distributions.7 Thus, the effect of petitioner’s contention
would be to allow him to make pretax contributions to his TESPHE
account, and then to exclude from gross income a portion of any
subsequent distribution by merely taking out a nontaxable loan
from his TESPHE account and making subsequent loan repayments.
Unless Congress has clearly provided otherwise, we should not
interpret the Code to result in such a double tax benefit. Darby
v. Commissioner, 97 T.C. 51, 68 (1991); see also United States v.
7 Sec. 1.72(p)-1, Q&A-21, Income Tax Regs., provides that
if a participant repays a loan after a deemed distribution of the
loan under sec. 72(p), then, for purposes of sec. 72(e), the
participant’s investment in the contract increases by the amount
of the cash repayments that the participant makes on a loan after
a deemed distribution. Petitioner’s prior loans were not deemed
distributions under sec. 72(p).
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 Next
Last modified: May 25, 2011