Stephen Daryl Royal - Page 8

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          from taxation under section 501(a).  Sec. 72(p)(4)(A)(i)(I).                
               Section 72(p)(2) sets forth an exception to the general rule           
          of section 72(p)(1)(A).  Section 72(p)(2) provides in pertinent             
          part:                                                                       
               SEC. 72. ANNUITIES; CERTAIN PROCEEDS OF ENDOWMENT AND                  
                         LIFE INSURANCE CONTRACTS.                                    
                  *       *       *       *       *       *       *                   
                    (2)  Exception for certain loans.--                               
                         (A) General rule.--Paragraph (1) [of section                 
                    72(p)] shall not apply to any loan to the extent                  
                    that such loan (when added to the outstanding                     
                    balance of all other loans from such plan whether                 
                    made on, before, or after August 13, 1982), does                  
                    not exceed the lesser of--                                        
                              (i) $50,000, reduced by the excess (if                  
                         any) of--                                                    
                                   (I) the highest outstanding balance                
                              of loans from the plan during the 1-year                
                              period ending on the day before the date                
                              on which such loan was made, over                       
                                   (II) the outstanding balance of                    
                              loans from the plan on the date on which                
                              such loan was made, or                                  
                              (ii) the greater of (I) one-half of the                 
                         present value of the nonforfeitable accrued                  
                         benefit of the employee under the plan, or                   
                         (II) $10,000.                                                
                    For purposes of clause (ii), the present value of                 
                    the nonforfeitable accrued benefit shall be deter-                
                    mined without regard to any accumulated deductible                
                    employee contributions (as defined in subsection                  
                    (o)(5)(B)).                                                       
                         (B) Requirement that loan be repayable within                
                    5 years.--                                                        






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