[Federal Register Volume 63, Number 1 (Friday, January 2, 1998)]
[Proposed Rules]
[Pages 42-45]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-33983]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-209476-82]
RIN 1545-AE41
Loans to Plan Participants
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document amends proposed Income Tax Regulations under
section 72(p) of the Internal Revenue Code relating to loans made from
a qualified employer plan to plan participants or beneficiaries.
Section 72(p) was added by section 236 of the Tax Equity and Fiscal
Responsibility Act of 1982, and amended by the Technical Corrections
Act of 1982, the Deficit Reduction Act of 1984, the Tax Reform Act of
1986 and the Technical and Miscellaneous Revenue Act of 1988. These
regulations provide guidance to the public with respect to section
72(p), and affect administrators of, participants in, and beneficiaries
of qualified employer plans that permit participants or beneficiaries
to receive loans from the plan (including loans from section 403(b)
contracts and other contracts issued under qualified employer plans).
DATES: Written comments and requests for a public hearing must be
received by April 2, 1998.
ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-209476-82), room
5226, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand delivered between the
hours 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG-209476-82), Courier's
Desk, Internal Revenue Service, 1111 Constitution Avenue NW,
Washington, DC. Alternatively, taxpayers may submit comments
electronically via the Internet by selecting the ``Tax Regs'' option on
the IRS Home Page, or by submitting comments directly to the IRS
Internet site at http://www.irs.ustreas.gov/prod/tax__regs/
comments.html.
FOR FURTHER INFORMATION CONTACT:
Concerning the regulations Vernon S. Carter, (202) 622-6070; concerning
submissions or requests to speak at the hearing, La Nita VanDyke, (202)
622-7190 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed amendments to the Proposed Income
Tax Regulations (26 CFR Part 1) under section 72 of the Internal
Revenue Code of 1986 (Code). These amendments provide additional
guidance concerning the tax treatment of loans that are deemed to be
distributed under section 72(p).
Explanation of Provisions
Section 72(p)(1)(A) provides that a loan from a qualified employer
plan (including a contract purchased under a qualified employer plan)
to a participant or beneficiary is treated as received as a
distribution from the plan for purposes of section 72 (a deemed
distribution). Section 72(p)(1)(B) provides that an assignment or
pledge of (or an agreement to assign or pledge) any portion of a
participant's or beneficiary's interest in a qualified employer plan is
treated as a loan from the plan.
Section 72(p)(2) provides that section 72(p)(1) does not apply to
the extent certain conditions are satisfied. Specifically, under
section 72(p)(2), a loan from a qualified employer plan to a
participant or beneficiary is not treated as a distribution from the
plan if the loan satisfies requirements relating to the term of the
loan and the repayment schedule, and to the extent the loan satisfies
certain limitations on the amount loaned.
Regulations were proposed in 1995 \1\ with respect to many of the
issues arising under section 72(p)(2). The preamble to the 1995
proposed regulations requested comments on whether further guidance
should be provided on certain issues that were not addressed. Following
publication of the 1995 proposed regulations, comments were received
and a public hearing was held on June 28, 1996. One of the issues on
which comments were requested and received was the effect of a deemed
distribution on the tax treatment of subsequent distributions from a
plan (such as whether a participant has tax basis as a result of a
deemed distribution). After reviewing the written comments and comments
made at the public hearing, these new proposed regulations address this
issue.
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\1\ Proposed Sec. 1.72(p)-1 (EE-106-82) was published in the
Federal Register (60 FR 66233) on December 21, 1995.
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These new proposed regulations provide that once a loan is deemed
distributed under section 72(p), the interest that accrues thereafter
on that loan is not included in income.\2\ Further, because the loan
amount is treated as distributed for purposes of section 72, neither
the income that resulted from the deemed distribution nor the interest
that accrues thereafter increases the participant's investment in the
contract (tax basis) for purposes of section 72.
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\2\ This treatment applies for purposes of determining the
amount taxable under section 72 (including application of return of
tax basis). However, as discussed below, the loan is still
considered outstanding for purposes of determining the maximum
amount of any subsequent loan to the participant under section
72(p)(2)(A). Even though interest continues to accrue on the
outstanding loan and is taken into account for purposes of
determining the maximum amount of any subsequent loan, this
additional interest is not treated as an additional loan that
results in a further deemed distribution for purposes of section
72(p).
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For example, assume that, after a loan has been made from a defined
contribution plan to a participant, a deemed distribution occurs as a
result of failure to make timely loan repayments (e.g., the repayments
were not to be made by payroll withholding \3\). The participant's
total account then consists of non-loan assets and a receivable for the
loan balance. At separation from employment, the participant's vested
[[Page 43]]
account balance is reduced (offset) by the loan amount and the
remaining account balance is distributed in a lump sum to the
participant. In this case, in addition to the income that previously
arose as a result of the deemed distribution due to the failure to make
timely payments on the loan, the participant would have a taxable
distribution at separation from employment for the remaining account
balance reflecting the non-loan assets that are distributed in a lump
sum (with no tax basis as a result of the prior deemed distribution of
the loan amount). The offset of the loan balance (i.e., the offset of
the loan receivable by the loan amount) would be disregarded for
purposes of section 72 because the loan had previously been deemed
distributed as a result of the failure to make timely payments on the
loan.
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\3\ With respect to coverage under Title I of the Employee
Retirement Income Security Act of 1974, the Department of Labor has
advised the Service that an employer's tax-sheltered annuity program
would not necessarily fail to satisfy the Department's regulation at
29 CFR 2510.3-2(f) merely because the employer permits employees to
make repayments of loans made in connection with the tax-sheltered
annuity program through payroll deductions as part of the employer's
payroll deduction system, if the program operates within the
limitations set by that regulation.
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A loan that is deemed distributed under section 72 is nevertheless
outstanding for other purposes until the loan obligation is satisfied
(e.g., by cash repayment or by offset against the participant's accrued
benefit). Q&A-13 of the 1995 proposed regulations lists other
differences between a deemed distribution and a loan offset. In
addition, for purposes of calculating the maximum permitted amount of
any subsequent loan, a loan that has been deemed distributed is
considered outstanding until the loan obligation has been satisfied.
The proposed regulations also provide that if a participant makes
any cash repayments on a loan after the loan is deemed distributed, the
repayments increase the participant's tax basis in the plan in the same
manner as if the repayments were after-tax contributions. However, such
repayments are not treated as after-tax contributions for purposes of
section 401(m) or 415(c)(2)(B).
These regulations are proposed to become effective for loans made
on or after the first January 1 that is at least 6 months after the
date the regulations are published as final regulations in the Federal
Register (the regulatory effective date). These regulations also revise
the proposed effective date for the 1995 proposed regulations, so that
the same proposed effective date would apply to the 1995 proposed
regulations and these proposed regulations.
Generally, a plan is permitted to apply the new proposed
regulations to loans made before the regulatory effective date.
However, the regulations include a special consistency rule applicable
if there has been any deemed distribution of the loan before the date
the plan switches to the new proposed regulations for the loan. In this
event, a plan is not permitted to apply the new proposed regulations to
the loan unless the plan reported, in Box 1 of Form 1099-R, a gross
distribution with respect to the loan that is at least equal to the
amount required by the 1995 proposed regulations (referred to as the
initial default amount in the new proposed regulations) for a taxable
year that is not later than the latest year that would be permitted
under the 1995 proposed regulations. In such a case, the plan may apply
the new proposed regulations to the loan even though, in the past, the
plan reported deemed distributions with respect to the loan in a manner
that is not consistent with the new proposed regulations.
If a plan does apply the new proposed regulations to a pre-
regulatory effective date loan that has been deemed distributed, then
the plan, in its subsequent reporting and withholding, must not
attribute investment in the contract (tax basis) to the participant
based upon the initial default amount. For example, a plan that
reported income for the initial default amount plus all interest
accruing thereafter as a result of the default and made corresponding
increases in the participant's tax basis would comply with this
consistency rule by reducing the participant's tax basis by an amount
equal to the initial default amount. However, a special rule applies if
a plan had increased a participant's tax basis by the initial default
amount and, just before the first actual distribution made after the
plan switches to applying the new proposed regulations to the loan, the
sum of the participant's tax basis immediately before the switch plus
any increase in basis thereafter is less than the initial default
amount (as a result of intervening distributions). In this case, a loan
transition amount equal to the amount by which the initial default
amount exceeds the participant's tax basis is treated as remaining
outstanding and that amount is includible in the participant's income
at the time of the next actual distribution from the plan to the
participant. The proposed regulations include examples illustrating the
application of the consistency rule.
Comments are requested on whether the final regulations should
include further guidance relating to plan loans made to participants
before the regulatory effective date.
Taxpayers may rely on these proposed regulations for guidance
pending the issuance of final regulations. If, and to the extent,
future guidance is more restrictive than the guidance in these proposed
regulations, the future guidance will be applied without retroactive
effect.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in EO 12866. Therefore,
a regulatory assessment is not required. It has also been determined
that section 553(b) of the Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regulations, and because the
regulation does not impose a collection of information on small
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not
apply. Pursuant to section 7805(f) of the Internal Revenue Code, this
notice of proposed rulemaking will be submitted to the Chief Counsel
for Advocacy of the Small Business Administration for comment on its
impact on small business.
Comments and Requests for a Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written comments that are submitted
timely (preferable a signed original and eight copies) to the IRS. All
comments will be available for public inspection and copying. A public
hearing will be scheduled if requested in writing by a person that
timely submits written comments. If a public hearing is scheduled,
notice of the date, time and place for the hearing will be published in
the Federal Register.
Drafting Information
The principal author of these regulations is Vernon S. Carter,
Office of Associate Chief Counsel (Employee Benefits and Exempt
Organizations). However, other personnel from the IRS and Treasury
Department participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Amendments to the Previously Proposed Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read,
in part, as follows:
Authority: 126 U.S.C. 7805. * * *
Par. 2. Section 1.72(p)-1 of the proposed regulations published
December 21, 1995, (60 FR 66233) is amended as follows:
[[Page 44]]
1. Q&A-19 is redesignated as Q&A-21.
2. New Q&A-19 and Q&A-20 are added.
3. Q&A-21, as redesignated, is revised.
The additions and revision read as follows:
Sec. 1.72(p)-1 Loans treated as distributions.
* * * * *
Q-19: If there is a deemed distribution under section 72(p), is the
interest that accrues thereafter on the amount of the deemed
distribution an indirect loan for income tax purposes?
A-19: (a) General rule. Except as provided in paragraph (b) of this
Q&A-19, a deemed distribution of a loan is treated as a distribution
for purposes of section 72. Therefore, a loan that is deemed to be
distributed under section 72(p) ceases to be an outstanding loan for
purposes of section 72, and the interest that accrues thereafter under
the plan on the amount deemed distributed is disregarded in applying
section 72 to the participant or beneficiary. Even though interest
continues to accrue on the outstanding loan (and is taken into account
for purposes of determining the tax treatment of any subsequent loan in
accordance with paragraph (b) of this Q&A-19), this additional interest
is not treated as an additional loan (and, thus, does not result in an
additional deemed distribution) for purposes of section 72(p). However,
a loan that is deemed distributed under section 72(p) is not considered
distributed for all purposes of the Internal Revenue Code. See Q&A-11
through Q&A-16 of this section.
(b) Exception for purposes of applying section 72(p)(2)(A) to a
subsequent loan. A loan that is deemed distributed under section 72(p)
(including interest accruing thereafter) and that has not been repaid
(such as by a plan loan offset) is considered outstanding for purposes
of applying section 72(p)(2)(A) to determine the maximum amount of any
subsequent loan to the participant or beneficiary.
Q-20: Is a participant's tax basis in the plan increased if the
participant repays the loan after a deemed distribution?
A-20: (a) Repayments after deemed distribution. Yes, if the
participant or beneficiary repays the loan after a deemed distribution
of the loan under section 72(p), then, for purposes of section 72(e),
the participant's or beneficiary's investment in the contract (tax
basis) under the plan increases by the amount of the cash repayments
that the participant or beneficiary makes on the loan after the deemed
distribution. However, loan repayments are not treated as after-tax
contributions for other purposes, including sections 401(m) and
415(c)(2)(B).
(b) Example. The following example illustrates the rules in
paragraph (a) of this Q&A-20 and is based on the assumptions described
in ASSUMPTIONS FOR EXAMPLES:
Example. (a) A participant receives a $20,000 loan on January 1,
1999, to be repaid in 20 quarterly installments of $1,245 each. On
December 31, 1999, the outstanding loan balance ($19,179) is deemed
distributed as a result of a failure to make quarterly installment
payments that were due on September 30, 1999 and December 31, 1999.
On June 30, 2000, the participant repays $5,147 (which is the sum of
the three installment payments that were due on September 30, 1999,
December 31, 1999, and March 31, 2000, with interest thereon to June
30, 2000, plus the installment payment that was due on June 30,
2000). Thereafter, the participant resumes making the installment
payments of $1,245 from September 30, 2000 through December 31,
2003. The loan repayments made after December 31, 1999 through
December 31, 2003 total $22,577.
(b) Because the participant repaid $22,577 after the deemed
distribution that occurred on December 31, 1999, the participant has
investment in the contract (tax basis) equal to $22,577 as of
December 31, 2003.
Q-21: When is the effective date of section 72(p) and these
regulations?
A-21: (a) Statutory effective date. Section 72(p) generally applies
to assignments, pledges, and loans made after August 13, 1982.
(b) Regulatory effective date. This section applies to assignments,
pledges, and loans made on or after the first January 1 that is at
least 6 months after the date of publication of the final regulations
in the Federal Register (the regulatory effective date).
(c) Loans made before the regulatory effective date--(1) General
rule. A plan is permitted to apply Q&A-19 and Q&A-20 of this section to
a loan made before the regulatory effective date (and after the
statutory effective date in paragraph (a) of this Q&A-21) if there has
not been any deemed distribution of the loan before the transaction
date or if the conditions of paragraph (c)(2) of this Q&A-21 are
satisfied with respect to the loan.
(2) Consistency transition rule for certain loans deemed
distributed before the regulatory effective date. (i) The rules in this
paragraph (c)(2) apply to a loan made before the regulatory effective
date (and after the statutory effective date in paragraph (a) of this
Q&A-21) if there has been any deemed distribution of the loan before
the transition date.
(ii) The plan is permitted to apply Q&A-19 and Q&A-20 of this
section to the loan beginning on any January 1, but only if the plan
reported, in Box 1 of Form 1099-R, for a taxable year no later than the
latest taxable year that would be permitted under this section, a gross
distribution of an amount at least equal to the initial default amount.
For purposes of this section, the initial default amount is the amount
that would be reported as a gross distribution under Q&A-4 and Q&A-10
of this section and the transition date is the January 1 on which a
plan begins applying Q&A-19 and Q&A-20 of this section to a loan.
(iii) If a plan applies Q&A-19 and Q&A-20 of this section to such a
loan, then the plan, in its reporting and withholding on or after the
transition date, must not attribute investment in the contract (tax
basis) to the participant or beneficiary based upon the initial default
amount.
(iv) This paragraph (c)(2)(iv) applies if--
(A) The plan attributed investment in the contract (tax basis) to
the participant or beneficiary based on the deemed distribution of the
loan;
(B) The plan subsequently made an actual distribution to the
participant or beneficiary before the transition date; and
(C) Immediately before the first actual distribution made on or
after the transition date, the initial default amount (or, if less, the
amount of the investment in the contract so attributed) exceeds the sum
of the participant's or beneficiary's investment in the contract (tax
basis) immediately before the transition date plus any increase in the
participant's or beneficiary's investment in the contract (tax basis)
on or after the transition date. If this paragraph (c)(2)(iv) applies,
the plan must treat the excess (the loan transition amount) as a loan
amount that remains outstanding and must include the excess in the
participant's or beneficiary's income at the time of the actual
distribution.
(3) Examples. The rules in paragraph (c)(2) of this Q&A-21 are
illustrated by the following examples, which are based on the
assumptions described in ASSUMPTIONS FOR EXAMPLES (and, except as
specifically provided in the examples, also assume that no
distributions are made to the participant and that the participant has
no investment in the contract with respect to the plan). Example 1,
Example 2, and Example 4 illustrate the application of these rules to a
plan that, before the transition date, did not treat interest accruing
after the initial deemed distribution as resulting in additional deemed
distributions under section 72(p). Example 3 illustrates the
[[Page 45]]
application of these rules to a plan that, before the transition date,
treated interest accruing after the initial deemed distribution as
resulting in additional deemed distributions under section 72(p).
Example 1. (a) In 1995, when a participant's account balance
under a plan is $50,000, the participant receives a loan from the
plan. The participant makes the required repayments until 1996 when
there is a deemed distribution of $20,000 as a result of a failure
to repay the loan. For 1996, as a result of the deemed distribution,
the plan reports, in Box 1 of Form 1099-R, a gross distribution of
$20,000 (which is the initial default amount in accordance with
paragraph (c)(2)(ii) of Q&A-21 of this section) and, in Box 2 of
Form 1099-R, a taxable amount of $20,000. The plan then records an
increase in the participant's tax basis for the same amount
($20,000). Thereafter, the plan disregards, for purposes of section
72, the interest that accrues on the loan after the 1996 deemed
distribution. Thus, as of December 31, 1998, the total taxable
amount reported by the plan as a result of the deemed distribution
is $20,000 and the plan's records show that the participant's tax
basis is the same amount ($20,000). As of January 1, 1999, the plan
decides to apply Q&A-19 of this section to the loan. Accordingly, it
reduces the participant's tax basis by the initial default amount of
$20,000, so that the participant's remaining tax basis in the plan
is zero. Thereafter, the amount of the outstanding loan is not
treated as part of the account balance for purposes of section 72.
The participant attains age 59-\1/2\ in the year 2000 and receives a
distribution of the full account balance under the plan consisting
of $60,000 in cash and the loan receivable. At that time, the plan's
records reflect an offset of the loan amount against the loan
receivable in the participant's account and a distribution of
$60,000 in cash.
(b) For the year 2000, the plan must report a gross distribution
of $60,000 on Box 1 of Form 1099-R and a taxable amount of $60,000
in Box 2 of Form 1099-R.
Example 2. The facts are the same as in Example 1, except that
in 1996, immediately prior to the deemed distribution, the
participant's account balance under the plan totals $50,000 and the
participant's tax basis is $10,000. For 1996, the plan reports, in
Box 1 of Form 1099-R, a gross distribution of $20,000 (which is the
initial default amount in accordance with paragraph (c)(2)(ii) of
Q&A-21 of this section) and reports, in Box 2 of Form 1099-R, a
taxable amount of $16,000 (the $20,000 deemed distribution minus
$4,000 of tax basis ($10,000 times ($20,000/$50,000)) allocated to
the deemed distribution). The plan then records an increase in tax
basis equal to the $20,000 deemed distribution, so that the
participant's remaining tax basis as of December 31, 1996 totals
$26,000 ($10,000 minus $4,000 plus $20,000). Thereafter, the plan
disregards, for purposes of section 72, the interest that accrues on
the loan after the 1996 deemed distribution. Thus, as of December
31, 1998, the total taxable amount reported by the plan as a result
of the deemed distribution is $16,000 and the plan's records show
that the participant's tax basis is $26,000. As of January 1, 1999,
the plan decides to apply Q&A-19 of this section to the loan.
Accordingly, it reduces the participant's tax basis by the initial
default amount of $20,000, so that the participant's remaining tax
basis in the plan is $6,000. Thereafter, the amount of the
outstanding loan is not treated as part of the account balance for
purposes of section 72. The participant attains age 59\1/2\ in the
year 2000 and receives a distribution of the full account balance
under the plan consisting of $60,000 in cash and the loan
receivable. At that time, the plan's records reflect an offset of
the loan amount against the loan receivable in the participant's
account and a distribution of $60,000 in cash.
(b) For the year 2000, the plan must report a gross distribution
of $60,000 on Box 1 of Form 1099-R and a taxable amount of $54,000
in Box 2 of Form 1099-R.
Example 3. (a) In 1990, when a participant's account balance in
a plan is $100,000, the participant receives a loan of $50,000 from
the plan. The participant makes the required loan repayments until
1992 when there is a deemed distribution of $28,919 as a result of a
failure to repay the loan. For 1992, as a result of the deemed
distribution, the plan reports, in Box 1 of Form 1099-R, a gross
distribution of $28,919 (which is the initial default amount in
accordance with paragraph (c)(2)(ii) of Q&A-21 of this section) and,
in Box 2 of Form 1099-R, a taxable amount of $28,919. For 1992, the
plan also records an increase in the participant's tax basis for the
same amount ($28,919). Each year thereafter through 1998, the plan
reports a gross distribution equal to the interest accruing that
year on the loan balance, reports a taxable amount equal to the
interest accruing that year on the loan balance reduced by the
participant's tax basis allocated to the gross distribution, and
records a net increase in the participant's tax basis equal to that
taxable amount. As of December 31, 1998, the taxable amount reported
by the plan as a result of the loan totals $44,329 and the plan's
records for purposes of section 72 show that the participant's tax
basis totals the same amount ($44,329). As of January 1, 1999, the
plan decides to apply Q&A-19 of this section. Accordingly, it
reduces the participant's tax basis by the initial default amount of
$28,919, so that the participant's remaining tax basis in the plan
is $15,410 ($44,329 minus $28,919) as of December 31, 1999.
Thereafter, the amount of the outstanding loan is not treated as
part of the account balance for purposes of section 72. The
participant attains age 59\1/2\ in the year 2000 and receives a
distribution of the full account balance under the plan consisting
of $180,000 in cash and the loan receivable equal to the $28,919
outstanding loan amount in 1992 plus interest accrued thereafter to
the payment date in 2000. At that time, the plan's records reflect
an offset of the loan amount against the loan receivable in the
participant's account and a distribution of $180,000 in cash.
(b) For the year 2000, the plan must report a gross distribution
of $180,000 in Box 1 of Form 1099-R and a taxable amount of $164,590
in Box 2 of Form 1099-R ($180,000 minus the remaining tax basis of
$15,410).
Example 4. (a) The facts are the same as in Example 1, except
that in 1997, after the deemed distribution, the participant
receives a $10,000 hardship distribution. At the time of the
hardship distribution, the participant's account balance under the
plan totals $50,000. For 1997, the plan reports, in Box 1 of Form
1099-R, a gross distribution of $10,000 and, in Box 2 of Form 1099-
R, a taxable amount of $6,000 (the $10,000 actual distribution minus
$4,000 of tax basis ($10,000 times ($20,000/$50,000)) allocated to
this actual distribution). The plan then records a decrease in tax
basis equal to $4,000, so that the participant's remaining tax basis
as of December 31, 1997 totals $16,000 ($20,000 minus $4,000). After
1996, the plan disregards, for purposes of section 72, the interest
that accrues on the loan after the 1996 deemed distribution. Thus,
as of December 31, 1998, the total taxable amount reported by the
plan as a result of the deemed distribution plus the 1997 actual
distribution is $26,000 and the plan's records show that the
participant's tax basis is $16,000. As of January 1, 1999, the plan
decides to apply Q&A-19 of this section to the loan. Accordingly, it
reduces the participant's tax basis by the initial default amount of
$20,000, so that the participant's remaining tax basis in the plan
is reduced from $16,000 to zero. However, because the $20,000
initial default amount exceeds $16,000, the plan records a loan
transition amount of $4,000 ($20,000 minus $16,000). Thereafter, the
amount of the outstanding loan, other than the $4,000 loan
transition amount, is not treated as part of the account balance for
purposes of section 72. The participant attains age 59\1/2\ in the
year 2000 and receives a distribution of the full account balance
under the plan consisting of $60,000 in cash and the loan
receivable. At that time, the plan's records reflect an offset of
the loan amount against the loan receivable in the participant's
account and a distribution of $60,000 in cash.
(b) In accordance with paragraph (c)(2)(iv) of Q&A-21 of this
section, the plan must report in Box 1 of Form 1099-R a gross
distribution of $64,000 and in Box 2 of Form 1099-R a taxable amount
for the participant for the year 2000 equal to $64,000 (the sum of
the $60,000 paid in the year 2000 plus $4,000 as the loan transition
amount).
Michael P. Dolan,
Deputy Commissioner of Internal Revenue.
[FR Doc. 97-33983 Filed 12-31-97; 8:45 am]
BILLING CODE 4830-01-M