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At the time that Graphic Packaging stopped deducting loan
payments from Mr. White’s paychecks, the unpaid loan balance was
$6,662. No further loan payments were ever made. After
expiration of the “cure” period in 2001, the loan was treated by
the plan administrator as having been defaulted.
Fidelity Investments issued a Form 1099-R, Distributions
From Pensions, Annuities, Retirement or Profit-Sharing Plans,
IRAs, Insurance Contracts, etc., for 2001 reporting a gross
distribution to Mr. White in the amount of $6,662. Petitioners
did not report this distribution on their return.
In the notice of deficiency, respondent determined that
petitioners were required to include the $6,662 distribution in
income. Respondent also determined that the distribution was
subject to the 10-percent additional tax under section 72(t) on
early distributions from qualified retirement plans.
Discussion
Issue 1.
Section 402(a) provides generally that distributions from a
qualified plan are taxable to the distributee in the taxable year
in which the distribution occurs, pursuant to the provisions of
section 72. Accordingly, we turn our attention to section 72
and, in particular, to section 72(p)(1)(A), the section of the
Internal Revenue Code that treats certain loans from a qualified
employer plan to a participant or beneficiary as taxable
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Last modified: May 25, 2011