Loan Refinancing

[R. Butler]

A question about loan refinancing. Facts are as follows:

Participant A takes Loan #1 for $11,000 in 2/99; loan fully amotized in 2/03.

Participant A takes Loan #2 for $10,000 in 10/01; loan fully amortized 9/06.

Participant A refinances Loan #1 & Loan #2 into Loan #3 in 2/02; loan fully amortized 9/06.

Participant A wants to take Loan #4. I am fairly certain that for purposes of 72(p)(2) that we currently have 2 outstanding loans, Loan #1 and Loan #3. Loan #2 would not be considered outstanding because it was refinanced into Loan #3 and the amortization period was not extended.

I am easily confused with multiple loans, is my analysis correct?

Thanks for any guidance.

[QDROphile]

Why do you care how many loans are outstanding?

[R. Butler]

I don't care how many are outstanding, I am concerned with the maximum amount. If both Loan #2 and Loan #3 were considered outstanding at the time of the refinancing transaction then wouldn't I have to consider both in determining the highest outstanding balance over the past 12 months?

[jaemmons]

Refinancing loan #1 violates the maximum repayment period under 72(p). Therefore, I would have the participant repay the loan #1 amount by its original due date 2/03 or they may have to deal with potential excise taxes on the amount involved.

[R. Butler]

I am fairly confident that the refinancing of Loan #1 does not violate the the maximum repayment period as long as I have treated the loan as outstanding for purposes of applying the loan limits on the refinancing date. The proposed regs. are fairly clear on that.

In regards Loan #4, I am still counting Loan #1 as outstanding 02/02. My only concern is whether Loan #2 would also be also treated as an outstanding loan on the date off refinancing for purposes of applying future loan limits. I think the answer is no, but I am not 100% sure.

To be specific I am trying to determine the highest outstanding loan balance within the past 12 months. If I have to count both Loan #2 and Loan #3 as outstanding on the refinancing date, obviously my maximum loan amount changes.