Jump to content

which comes first, the chicken or the egg?


Guest

Recommended Posts

Loan was given to owner of an S corp, which of course would be a prohibited transaction.

but also, Plan does not allow loans.

so, which comes first? Is it an operational defect that can be corrected (perhaps under APRSC)

or a prohibited transaction, which is not correctable under any of the programs.

owner has been paying back loan with interest.

as a side note, plan does not allow in-service withdrawals, so it can't be treated as a distribution.

Link to comment
Share on other sites

who knows?

but seriously, if plan allowed loans, then I definitely have a prohibited transaction.

But plan doesn't allow loans, so I have an operational defect. hence, instead of viewing things as a 'loan' I could consider it a 'distribution'. oops, no valid reason for a distribution since ee is still working. so I have a different operational defect. under APRSC I can self correct by having the $ paid back.

The difference being, in one case, there are prohibited transaction penalties, in the other case there doesn't appear to be any.

This is a takeover, 'loan' was made in 1998.

Link to comment
Share on other sites

Isn't it clear in EPCRS that this program is not effective with respect to prohibited transactions? I know that this means that pts can't be corrected under EPCRS, but doesn't it also mean that the "fiction" of defect/correction/no defect is just ignored for the prohibited transaction rules. By using one of the EPCRS methods, you don't really undo history and erase the transaction, you just prevent the facts from causing disqualification. You still have your prohibited transaction no matter what you do.

B.L.: You have a chicken omelette

Link to comment
Share on other sites

I'm willing to admit I've laid a few in my time, and, come to think of it, I am a bit chicken....hmmm

that doesn't help answer my original question, and this isn't the spot for why I hold to creation over evolution...

Link to comment
Share on other sites

Really, the way the PT rules are set up, all loans are PTs. The section (4975) then goes on the define exceptions for certain transactions.

Most loans qualify as an exception to the PT rules. Since your loan does not, it seems to me that it is a PT regardless of whether the plan in question has a bona fide loan program.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...