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1991). On the record before us, petitioner has failed to carry
this burden.
Petitioner contends that the loans were good for the Plan,
providing diversification and a good return with “safe, secure
collateral.” In Leib v. Commissioner, 88 T.C. 1474 (1987), the
taxpayer sold stock to the employees’ pension trust of the
professional corporation that he owned. The taxpayer contended
that the trust’s purchase “would qualify as a prudent investment
if judged under the highest fiduciary standards.” Id. at 1477.
We concluded on that issue as follows:
After a review of the statutory framework and
legislative history of section 4975 and the case law
interpreting ERISA section 406, we conclude that the
prohibited transactions contained in section 4975(c)(1)
are just that. The fact that the transaction would
qualify as a prudent investment when judged under the
highest fiduciary standards is of no consequence.
Furthermore, the fact that the plan benefits from the
transaction is irrelevant. Good intentions and a pure heart
are no defense. * * * [Id. at 1481].
Thus, prudence of the investment and actual benefit to the
Plan are not sufficient to excuse petitioner from imposition of
tax under section 4975(a) if petitioner participated in a
prohibited transaction with respect to the Plan.
Respondent directs our attention to O’Malley v.
Commissioner, 96 T.C. 644 (1991), affd. 972 F.2d 150 (7th Cir.
1992), in which we held that a transaction violated section
4975(c)(1)(D) even though the taxpayer “did not receive any
direct payments from the Plan”. Petitioner correctly points out
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