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underlying liability for 2000 in their hearing request, at the
hearing, and in the petition. Accordingly, petitioners’
underlying liability is properly before the Court, and we review
that issue de novo. See Montgomery v. Commissioner, 122 T.C. 1
(2004); Sego v. Commissioner, supra; Goza v. Commissioner, supra.
We shall review the remainder of respondent’s determination for
an abuse of discretion. See Sego v. Commissioner, supra.
Section 402(a) provides generally that distributions from a
qualified plan are taxable to the distributee, in the taxable
year of the distributee in which distribution occurs, pursuant to
section 72. Section 72(p)(1)(A) provides the general rule that
proceeds of a loan from a qualified employer plan to a plan
participant are treated as a taxable distribution to the
participant in the year in which the loan proceeds are received.
See Patrick v. Commissioner, T.C. Memo. 1998-30, affd. 181 F.3d
103 (6th Cir. 1999). Section 72(p)(2), however, provides an
exception to this general rule. Under this exception, a loan is
not treated as a taxable distribution if: (1) The principal
amount of the loan (when added to the outstanding balance of all
other loans from the same plan) does not exceed a specified
limit, sec. 72(p)(2)(A); (2) the loan, by its terms, must be
repaid within 5 years from the date of its inception or is made
to finance the acquisition of a home which is the principal
residence of the participant, sec. 72(p)(2)(B); and (3) the loan
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