- 18 -
person for the use of the property on or
after the date of such termination, for the
period such disqualified person would have
used the property (without regard to any
further extensions or renewals of such
period) if such termination had not occurred,
over the fair market value of such use for
such period.
In applying (a) of this subdivision the fair market
value of the use of property shall be the higher of the
rate (that is, fair rental value per period in the case
of use of property other than money or fair interest
rate in the case of use of money) at the time of the
act of self-dealing (within the meaning of paragraph
(e)(1) of this section) or such rate at the time of
correction of such act of self-dealing. In applying
(b) of this subdivision the fair market value of the
use of property shall be the rate at the time of
correction.
Pursuant to these regulations, where as here a prohibited
transaction is the lending of money, correction of the prohibited
transaction requires termination of the loan by its repayment
plus reasonable interest. Sec. 53.4941(e)-1(c)(4), Foundation
Excise Tax Regs.; see also Medina v. Commissioner, supra at 55;
Kadivar v. Commissioner, T.C. Memo. 1989-404. Given that none of
the three loans has been repaid, we conclude that petitioner did
not correct any of the prohibited transactions by November 7,
2001, the end of the applicable taxable period, and that the plan
was not “in a financial position not worse than that in which it
would be if the disqualified person were acting under the highest
fiduciary standards”. See sec. 4975(f)(5). We sustain
respondent’s determination that petitioner is liable for the
second-tier excise tax under section 4975(b). We note, however,
Page: Previous 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 NextLast modified: May 25, 2011