[Federal Register Volume 65, Number 147 (Monday, July 31, 2000)]
[Proposed Rules]
[Pages 46677-46681]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-18816]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-116495-99]
RIN 1545-AX68


Loans From a Qualified Employer Plan to Plan Participants or 
Beneficiaries

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed Income Tax Regulations 
relating to loans made from a qualified employer plan to plan 
participants or beneficiaries. These regulations 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 and electronic comments and requests for a public 
hearing must be received by October 30, 2000.

ADDRESSES: Send submissions to: CC:MSP:RU (REG-116495-99), room 5226, 
Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, 
DC 20044. Submissions may be hand delivered Monday through Friday 
between the hours of 8 a.m. and 5 p.m. to: CC:MSP:RU (REG-116495-99), 
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.gov/tax_regs/regslist.html.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Vernon S. 
Carter, (202) 622-6070; concerning submissions Sonya Cruse (202) 622-
7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

    This document contains proposed amendments to the Income Tax 
Regulations (26 CFR Part 1) under section 72 of the Internal Revenue 
Code of 1986 (Code).

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) 
by 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.
    Section 1704(n) of the Small Business Job Protection Act of 1996, 
Public Law 104-188 (110 Stat. 1755), added section 414(u) of the Code. 
Section 414(u)(4) provides that if a plan suspends the obligation to 
repay a loan made to an employee from the plan for any part of a period 
during which the employee is performing service in the uniformed 
services, that suspension is not to be taken into account for purposes 
of section 72(p).\1\ The proposed regulations provide a rule clarifying 
that, under section 414(u)(4), if a plan provides for the suspension of 
a participant's obligation to repay a loan for any part of any leave of 
absence for a period of military service (as defined in chapter 43 of 
title 38, United States Code), the suspension will not cause the loan 
to be deemed distributed, even if the leave exceeds one year, as long 
as loan repayments resume upon the completion of the military service, 
the amount then remaining due on the loan

[[Page 46678]]

is repaid in substantially level installments thereafter, and the loan 
is fully repaid by the end of the period equal to the original term of 
the loan plus the period of the military service.
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    \1\ Rev. Proc. 96-49 (1996-2 C.B. 369), includes a model 
amendment that may be used to reflect section 414(u)(4).
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    Regulations were proposed in 1995 \2\ 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 issues that were not addressed and how the issues 
should be resolved, including (1) the effect of a deemed distribution 
on the tax treatment of subsequent distributions from a plan (such as 
whether a participant has basis), (2) the application of the $50,000 
limitation to multiple loan arrangements, and (3) the application of 
section 72(p)(2) to a refinancing and to multiple loan arrangements. 
Following publication of the 1995 proposed regulations, various 
comments were received and a public hearing was held on June 28, 1996. 
After reviewing the written comments and comments made at the public 
hearing, proposed regulations generally addressing the first issue were 
published in the Federal Register (63 FR 42) on January 2, 1998 (REG-
209476-82).
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    \2\ Proposed Sec. 1.72(p)-1 was published in the Federal 
Register (60 FR 66233) on December 21, 1995.
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    Final regulations for the issues addressed in the 1995 and 1998 
proposed regulations are being published elsewhere in this issue of the 
Federal Register. These proposed regulations address the remaining 
issues on which comments were requested in the preamble to the 1995 
proposed regulations, namely, situations in which a loan is refinanced 
or more than one loan is made.
    These proposed regulations provide that if a loan is deemed 
distributed to a participant or beneficiary and has not been repaid, 
then no payment made thereafter to the participant or beneficiary will 
be treated as a loan for purposes of section 72(p)(2), unless certain 
conditions are satisfied. Specifically, there must be an arrangement 
among the plan, the participant or beneficiary, and the employer, 
enforceable under applicable law, under which repayments will be made 
by payroll withholding or the plan must receive adequate security for 
the additional loan (in addition to the participant's accrued benefit 
under the plan).\3\
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    \3\ The Department of Labor (DOL) has advised the IRS that, with 
respect to plans covered by Title I of the Employee Retirement 
Income Security Act of 1974 (88 Stat. 829) (ERISA), the 
administration of a participant loan program involves the management 
of plan assets. Therefore, fiduciary conduct undertaken in the 
administration of such a loan program must conform to the rules that 
govern transactions involving plan assets. In particular, a loan 
program must be administered in a prudent manner, solely in the 
interest of the participants and beneficiaries, and for the 
exclusive purpose of providing benefits to participants and 
beneficiaries. See, generally, ERISA sections 403, 404, and 406. In 
the view of DOL, it is questionable whether a participant loan 
program of a plan covered by Title I of ERISA that does not provide 
for timely repayment of loans (through payroll withholding or 
otherwise), regular and effective collection efforts following a 
default, and adequate security for the plan in the event of default 
would be in compliance with the rules applicable under Title I of 
ERISA to transactions involving plan assets. In the view of DOL, it 
is also questionable whether such a program would qualify for the 
relief provided under section 408(b)(1) of ERISA. See Preamble to 29 
CFR 2550.408b-1, (54 FR 30520, 30521) (July 20, 1989). Further, a 
plan may make a second loan to a defaulting participant whose prior 
loan remains unpaid only if such a loan would be in accordance with 
the applicable standards of Title I. A fiduciary must take steps to 
ensure, inter alia, that such a loan is bona fide and not a mere 
transfer of plan assets, that the loan is adequately secured, and 
that the plan's assets will be preserved in the event of default. 
See Preamble to 29 CFR 2550.408b-1, (54 FR at 30521).
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    The proposed regulations also provide that while a loan can be 
refinanced and additional amounts may be borrowed, the refinancing and 
multiple loan arrangements must satisfy the requirements in section 
72(p)(2)(B) and (C) that each loan be repaid in level installments, not 
less often than quarterly, over five years (or longer for certain home 
loans). Under the proposed regulations, a refinancing is, in effect, 
treated as a new loan that is then applied to repay a prior loan if the 
new loan both replaces a prior loan and has a later repayment date. 
Thus, the transaction will result in a deemed distribution if the 
amount of the new loan plus the prior outstanding loan exceeds the 
amount limitations of section 72(p)(2)(A). This rule does not apply to 
a refinancing loan under which the amount of the prior loan is to be 
repaid by the original repayment date of the prior loan. These 
standards are illustrated in examples.\4\
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    \4\ The examples in the new proposed regulations are based on 
the same assumptions described in Sec. 1.72(p)-1 introductory text 
of the final regulations.
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    In addition, a participant may borrow more than once from the plan 
under section 72(p)(2), but, in order to ensure that additional loans 
are not used to circumvent the requirements of section 72(p), a deemed 
distribution of a loan will occur if two loans have previously been 
made from the plan to the participant or beneficiary during the year.

Electronic Signatures Act

    The Electronic Signatures in Global and National Commerce Act (114 
Stat. 464) (the Electronic Signatures Act) was signed on June 30, 2000. 
Title I of the Electronic Signatures Act, which is generally effective 
October 1, 2000, applies to certain electronic records and signatures 
in commerce. Comments are requested on the impact of the Electronic 
Signatures Act on the final regulations under section 72(p) that appear 
in this issue of the Federal Register and on any future guidance that 
may be needed on the application of the Electronic Signatures Act to 
plan loan transactions.

Proposed Effective Date

    The regulations are proposed to be effective with respect to loans 
made on or after the first January 1 that is at least six months after 
publication as final regulations. However, Q&A-19(b)(2) of the proposed 
regulations would not apply to loans, whenever made, under an insurance 
contract that is in effect before a date that is 12 months after 
publication as final regulations if the insurance carrier is required 
under the insurance contract to offer loans to contractholders that are 
not secured (other than being secured by the participant's or 
beneficiary's benefit under the contract).

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
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 regulations do 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 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 (a signed original 
and (8) copies) or electronic comments that are submitted timely to the 
IRS. The IRS and Treasury Department specifically request comments on 
the clarity of the proposed rule and how it may be made easier to 
understand. All comments will

[[Page 46679]]

be available for public inspection and copying. A public hearing may 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 Division Counsel/Associate Chief Counsel (Tax Exempt and 
Government Entities). 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.

Proposed Amendments to the 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: 26 U.S.C. 7805 * * *

    Par. 2. Section 1.72(p)-1 is amended as follows:
    1. Q&A-9(b) and (c), Q&A-19 and Q&A-20 are revised.
    2. Q&A-22 is amended by adding new paragraph (d).
    The revisions and addition read as follows:


Sec. 1.72(p)-1  Loans treated as distributions.

* * * * *
    A-9: * * *
    (b) Military service. In accordance with section 414(u)(4), if a 
plan suspends the obligation to repay a loan made to an employee from 
the plan for any part of a period during which the employee is 
performing service in the uniformed services (as defined in chapter 43 
of title 38, United States Code), whether or not qualified military 
service, such suspension shall not be taken into account for purposes 
of section 72(p) or this section. Thus, if a plan suspends loan 
repayments for any part of a period during which the employee is 
performing military service described in the preceding sentence, such 
suspension shall not cause the loan to be deemed distributed even if 
the suspension exceeds one year and even if the term of the loan is 
extended. However, the loan will not satisfy the repayment term 
requirement of section 72(p)(2)(B) and the level amortization 
requirement of section 72(p)(2)(C) unless loan repayments resume upon 
the completion of such period of military service, the frequency of the 
periodic installments due during the period beginning when the military 
service ends and ending when the loan is repaid in full, and the amount 
of each periodic installment, is not less than the frequency and amount 
of the periodic installments required under the terms of the original 
loan, and the loan is repaid in full (including interest that accrues 
during the period of military service) by the end of the period equal 
to the original term of the loan plus the period of such military 
service.
    (c) Examples. The following examples illustrate the rules of 
paragraph (a) and (b) of this Q&A-9 and are based upon the assumptions 
described in the introductory text of this section:

    Example 1. (i) On July 1, 2001, a participant with a 
nonforfeitable account balance of $80,000 borrows $40,000 to be 
repaid in level monthly installments of $825 each over 5 years. The 
loan is not a principal residence plan loan. The participant makes 9 
monthly payments and commences an unpaid leave of absence that lasts 
for 12 months. The participant was not performing military service 
during this period. Thereafter, the participant resumes active 
employment and resumes making repayments on the loan until the loan 
is repaid. The amount of each monthly installment is increased to 
$1,130 in order to repay the loan by June 30, 2006.
    (ii) Because the loan satisfies the requirements of section 
72(p)(2), the participant does not have a deemed distribution. 
Alternatively, section 72(p)(2) would be satisfied if the 
participant continued the monthly installments of $825 after 
resuming active employment and on June 30, 2006 repaid the full 
balance remaining due.
    Example 2. (i) The facts are the same as in Example 1, except 
the participant was on leave of absence performing service in the 
uniformed services (as defined in chapter 43 of title 38, United 
States Code) for two years. After the military service ends on April 
2, 2004, the participant resumes active employment on April 19, 
2004, continues the monthly installments of $825 thereafter, and on 
June 30, 2008 repays the full balance remaining due ($10,527).
    (ii) Because the loan satisfies the requirements of section 
72(p)(2) and paragraph (b) of this Q&A-9, the participant does not 
have a deemed distribution. Alternatively, section 72(p)(2) would 
also be satisfied if the amount of each monthly installment after 
April 19, 2004, is increased to $983 in order to repay the loan by 
June 30, 2008 (without any balance remaining due then).
* * * * *
    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 and what effect 
does the deemed distribution have on subsequent loans?
    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 for purposes 
of applying section 72 to the participant or the 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-16 of this section.
    (b) Effect on subsequent loans--(1) Application of section 
72(p)(2)(A). 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.
    (2) Additional security for subsequent loans. If a loan is deemed 
distributed to a participant or beneficiary under section 72(p) and has 
not been repaid (such as by a plan loan offset), then no payment made 
thereafter to the participant or beneficiary shall be treated as a loan 
for purposes of section 72(p)(2) unless the loan otherwise satisfies 
section 72(p)(2) and this section and either of the following 
conditions is satisfied:
    (i) There is an arrangement among the plan, the participant or 
beneficiary, and the employer, enforceable under applicable law, under 
which repayments will be made by payroll withholding. For this purpose, 
an arrangement will not fail to be enforceable merely because a party 
has the right to revoke the arrangement prospectively.
    (ii) The plan receives adequate security from the participant or 
beneficiary that is in addition to the participant's or beneficiary's 
accrued benefit under the plan.
    (3) Condition no longer satisfied. If, following a deemed 
distribution that has

[[Page 46680]]

not been repaid, a payment is made to a participant or beneficiary that 
satisfies the conditions in paragraph (b)(2) of this Q&A-19 for 
treatment as a plan loan and, subsequently, before repayment of the 
second loan, the conditions in paragraph (b)(2) of this Q&A-19 are no 
longer satisfied with respect to the second loan (for example, if the 
loan recipient revokes consent to payroll withholding), the amount then 
outstanding on the second loan is treated as a deemed distribution 
under section 72(p).
    Q-20: May a participant refinance an outstanding loan or have more 
than one loan outstanding from a plan?
    A-20: (a) Refinancings and multiple loans--(1) General rule. A 
participant who has an outstanding loan that satisfies section 72(p)(2) 
and this section may refinance that loan or borrow additional amounts, 
if, under the facts and circumstances, the loans collectively satisfy 
the amount limitations of section 72(p)(2)(A) and the prior loan and 
the additional loan each satisfy the requirements of section 
72(p)(2)(B) and (C) and this section. For this purpose, a refinancing 
includes any situation in which one loan replaces another loan.
    (2) Loans that repay a prior loan and have a later repayment date. 
For purposes of section 72(p)(2) and this section (including paragraph 
(a)(3) of this Q&A-20 and the amount limitations of section 
72(p)(2)(A)), if a loan that satisfies section 72(p)(2) is replaced by 
a loan (a replacement loan) and the term of the replacement loan ends 
after the term of the loan it replaces (the replaced loan), the 
replacement loan and the replaced loan are both treated as outstanding 
on the date of the transaction. For purposes of the preceding sentence, 
the term of the replaced loan is determined under the terms of that 
loan as in effect immediately prior to the making of the replacement 
loan. Thus, for example, the replacement loan results in a deemed 
distribution if the sum of the amount of the replacement loan plus the 
outstanding balance of all other loans on the date of the transaction, 
including the replaced loan, fails to satisfy the amount limitations of 
section 72(p)(2)(A). This paragraph (a)(2) of this Q&A-20 does not 
apply to a replacement loan if the terms of the replacement loan would 
satisfy section 72(p)(2) and this section determined as if the 
replacement loan consisted of two separate loans, the replaced loan 
(amortized in substantially level payments over a period ending not 
later than the last day of the term of the replaced loan) and a new 
loan based on the difference between the amount of the replacement loan 
and the amount of the replaced loan.
    (3) Multiple loans. For purposes of section 72(p)(2) and this 
section, a loan to a participant or beneficiary shall be treated as a 
deemed distribution if two or more loans have previously been made from 
the plan to the participant or beneficiary during the year. This 
limitation applies on the basis of a calendar year unless the plan 
applies this limit on the basis of the plan year or another consistent 
12-month period.
    (b) Examples. The following examples illustrate the rules in 
paragraph (a) of this Q&A-20 and are based on the assumptions described 
in the introductory text of this section:

    Example 1. (i) A participant with a vested account balance that 
exceeds $100,000 borrows $40,000 from a plan on January 1, 2003, to 
be repaid in 20 quarterly installments of $2,491 each. Thus, the 
term of the loan ends on December 31, 2007. On January 1, 2004, when 
the outstanding balance on the loan is $33,322, the loan is 
refinanced and is replaced by a new $40,000 loan from the plan to be 
repaid in 20 quarterly installments. Under the terms of the 
refinanced loan, the loan is to be repaid in level quarterly 
installments (of $2,491 each) over the next 20 quarters. Thus, the 
term of the new loan ends on December 31, 2008.
    (ii) Under section 72(p)(2)(A), the amount of the new loan, when 
added to the outstanding balance of all other loans from the plan, 
must not exceed $50,000 reduced by the excess of the highest 
outstanding balance of loans from the plan during the 1-year period 
ending on December 31, 2003 over the outstanding balance of loans 
from the plan on January 1, 2004, with such outstanding balance to 
be determined immediately prior to the new $40,000 loan. Because the 
term of the new loan ends later than the term of the loan it 
replaces, both the new loan and the loan it replaces must be taken 
into account for purposes of applying section 72(p)(2), including 
the amount limitations in section 72(p)(2)(A). The amount of the new 
loan is $40,000, the outstanding balance on January 1, 2004 of the 
loan it replaces is $33,322 and the highest outstanding balance of 
loans from the plan during 2003 was $40,000. Accordingly, under 
section 72(p)(2)(A), the sum of the new loan and the outstanding 
balance on January 1, 2004 of the loan it replaces must not exceed 
$50,000 reduced by $6,678 (the excess of the $40,000 maximum 
outstanding loan balance during 2003 over the $33,322 outstanding 
balance on January 1, 2004, determined immediately prior to the new 
loan) and thus, must not exceed $43,322. The sum of the new loan 
($40,000) and the outstanding balance on January 1, 2004 of the loan 
it replaces ($33,322) is $73,322. Since $73,322 exceeds the $43,322 
limit under section 72(p)(2)(A) by $30,000, there is a deemed 
distribution of $30,000 on January 1, 2004.
    (iii) However, no deemed distribution would occur if, under the 
terms of the refinanced loan, the amount of the first 16 
installments on the refinanced loan were equal to $2,907, which is 
the sum of the $2,491 originally scheduled quarterly installment 
payment amount under the first loan, plus $416 (which is the amount 
required to repay, in level quarterly installments over five years 
beginning on January 1, 2004, the excess of the refinanced loan over 
the January 1, 2004 balance of the first loan ($40,000 minus $33,322 
equals $6,678)), and the amount of the 4 remaining installments were 
equal to $416. The refinancing would not be subject to paragraph 
(a)(2) of this Q&A-20 because the terms of the new loan would 
satisfy section 72(p)(2) and this section (including the 
substantially level amortization requirements of section 72(p)(2)(B) 
and (C)) determined as if the new loan consisted of two loans, one 
of which is in the amount of the first loan ($33,322) and is 
amortized in substantially level payments over a period ending 
December 31, 2007 (the last day of the term of the first loan) and 
the other of which is in the additional amount ($6,678) borrowed 
under the new loan. Similarly, the transaction also would not result 
in a deemed distribution (and would not be subject to paragraph 
(a)(2) of this Q&A-20) if the terms of the refinanced loan provided 
for repayments to be made in level quarterly installments (of $2,990 
each) over the next 16 quarters.
    Example 2. (i) The facts are the same as in Example 1, except 
that the applicable interest rate used by the plan when the loan is 
refinanced is significantly lower due to a reduction in market rates 
of interest and, under the terms of the refinanced loan, the amount 
of the first 16 installments on the refinanced loan is equal to 
$2,848 and the amount of the next 4 installments on the refinanced 
loan is equal to $406. The $2,848 amount is the sum of $2,442 to 
repay the first loan by December 31, 2007 (the term of the first 
loan), plus $406 (which is the amount to repay, in level quarterly 
installments over five years beginning on January 1, 2004, the 
$6,678 excess of the refinanced loan over the January 1, 2004 
balance of the first loan).
    (ii) The transaction does not result in a deemed distribution 
(and is not subject to paragraph (a)(2) of this Q&A-20) because the 
terms of the new loan would satisfy section 72(p)(2) and this 
section (including the substantially level amortization requirements 
of section 72(p)(2)(B) and (C)) determined as if the new loan 
consisted of two loans, one of which is in the amount of the first 
loan ($33,322) and is amortized in substantially level payments over 
a period ending December 31, 2007 (the last day of the term of the 
first loan) and the other of which is in the additional amount 
($6,678) borrowed under the new loan. The transaction would also not 
result in a deemed distribution (and not be subject to paragraph 
(a)(2) of this Q&A-20) if the terms of the new loan provided for 
repayments to be made in level quarterly installments (of $2,931 
each) over the next 16 quarters.
    Example 3. (i) A participant with a vested account balance that 
exceeds $100,000 borrows $20,000 from a plan on January 1, 2005 to 
be repaid in 20 quarterly installments of $1,245 each. On March 31, 
2005, when the

[[Page 46681]]

first installment is due, the participant receives a second loan 
equal to $1,245, with that March loan to be repaid in 20 quarterly 
installments of $78 each. On June 30, 2005, when the second 
installment is due on the January loan and the first installment is 
due on the March loan, the participant receives a third loan equal 
to $1,323 (which is the sum of the $1,245 installment and the $78 
installment then due), with that June loan to be repaid in 20 
quarterly installments of $82 each. On September 30, 2005, when the 
third installment is due on the January loan, the second installment 
is due on the March loan, and the first installment is due on the 
June loan, the participant receives a fourth loan equal to $1,405 
(which is the sum of the $1,245 installment, the $78 installment and 
the $82 installment then due), with that September loan to be repaid 
in 20 quarterly installments of $88 each. On December 31, 2005, when 
the fourth installment is due on the January loan, the third 
installment is due on the March loan, the second installment is due 
on the June loan, and the first installment is due on the September 
loan, the participant receives a fifth loan equal to $1,493 (which 
is the sum of the $1,245 installment, the $78 installment, the $82 
installment, and the $88 installment then due), with that December 
loan to be repaid in 20 quarterly installments of $93 each.
    (ii) Under paragraph (a)(3) of this Q&A-20, the participant has 
deemed distributions on June 30, 2005 equal to $1,323 (which is the 
amount of the June loan), on September 30, 2005 equal to $1,405 
(which is the amount of the September loan), and on December 31, 
2005 equal to $1,493 (which is the amount of the December loan) 
because on each of these dates the participant had previously 
received two loans from the plan during the year.
* * * * *
    A-22: * * *
    (d) Effective date for Q&A-19(b)(2) and Q&A-20. Paragraph (b)(2) of 
Q&A-19 and Q&A-20 of this section apply to loans made on or after the 
first January 1 that is at least 6 months after publication of final 
regulations in the Federal Register, except that paragraph (b)(2) of 
Q&A-19 of this section does not apply to loans, whenever made, under an 
insurance contract that is in effect before the date that is 12 months 
after publication of final regulations in the Federal Register under 
which the insurance carrier is required to offer loans to 
contractholders that are not secured (other than being secured by the 
participant's or beneficiary's benefit under the contract).

Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
[FR Doc. 00-18816 Filed 7-28-00; 8:45 am]
BILLING CODE 4830-01-U