wingCPA Posted January 10, 2020 Share Posted January 10, 2020 Hi everyone, I have a client with a closely held c-corporation who is deferring most/all of his income into a NQDC plan. The earning that are put aside/"invested" for him are currently put in an index fund. However, he would like to have the NQDC fund lend him money. I feel like this would not workout in an audit, but he has consulted with a tax attorney who states that the NQDC plan is making him a loan with interest/principal to be paid as lump sum in the future (20 years from now) similar to a mortgage. I feel as though this is more a scheme and will not work in the best interest of the client. Link to comment Share on other sites More sharing options...
CaliBen Posted January 10, 2020 Share Posted January 10, 2020 Cannot take a loan from a non-qualified DCP. Possibly the plan document provides for early distribution in the event of an unforeseeable emergency. Other options - reduce or eliminate deferrals for the next plan year. Find another source of funds - bank loan, 401k loan, loan from employer etc. rr_sphr 1 Link to comment Share on other sites More sharing options...
Luke Bailey Posted February 25, 2020 Share Posted February 25, 2020 The regulatory underpinning for wingCPA's response is 1.409A-3(f), re "Substutions." Would be interested to know how closely held the company is. There is a question as to whether deferred comp works in a situation where the exec owns 100% of the company and there is no effective restraint on access to funds. Luke Bailey Senior Counsel Clark Hill PLC 214-651-4572 (O) | LBailey@clarkhill.com 2600 Dallas Parkway Suite 600 Frisco, TX 75034 Link to comment Share on other sites More sharing options...
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