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If petitioner’s loans did not qualify for the exception
under section 72(p)(2), the Federal Thrift Savings Plan probably
would have notified petitioner that each such loan was to be
treated when made as a distribution from petitioner’s TSP retire-
ment account. See sec. 72(p)(1)(A). In that event, the Federal
Thrift Savings Plan would not have sent petitioner the respective
September 23, 2002 letters pertaining to petitioner’s $10,477.89
loan and petitioner’s $15,462.60 loan. It appears from those
letters that petitioner’s loans qualified for the exception under
section 72(p)(2) and that, when petitioner did not repay each of
petitioner’s loans as directed by the Federal Thrift Savings
Plan, the Federal Thrift Savings Plan made a distribution from
petitioner’s TSP retirement account of an amount to discharge or
offset the outstanding balance of each such loan.7 Cf. Duncan v.
Commissioner, T.C. Memo. 2005-171; sec. 1.72(p)-1, Q&A-13(a)(1)
and (2) and (b), Income Tax Regs. Those regulations, effective
for loans made on or after January 1, 2002, provide:
7TSP Form 1099-R showed that in 2002 the Federal Thrift
Savings Plan made a gross distribution to petitioner of
$25,940.49, all of which was taxable. In petitioner’s 2002
return, petitioner reported “Pensions and annuities” of
$33,118.49, of which he included only $7,178 in his gross income.
The difference between “Pensions and annuities” of $33,118.49
that petitioner reported in petitioner’s 2002 return and $7,178
of such pensions and annuities that petitioner included in his
gross income equals $25,940.49, the total amount of (1) peti-
tioner’s loans outstanding at the time of his retirement from the
Postal Service in 2002 and (2) the taxable distribution to
petitioner reported in TSP Form 1099-R.
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Last modified: May 25, 2011