Loan Default

[Guest revier]

A participant terminated employment and stopped making payments on a loan in the second quarter of 2004. The document considers the loan in default the following quarter. In addition the plan is valued daily and the funding company accrues interest on the loan daily.

When the 1099R is issued should the value of the defaulted loan be the principal outstanding as of the last day of the third quarter? Assume no communication was sent to the funding company until December 1, 2004 to issue a 1099R. Do you instruct them to reduce the value of the loan to the principal outstanding as of September 30, 2004?

Any thoughts would be appreciated?

[RCK]

I have not had time to dig out a cite on this, but am pretty sure that the amount of income is the loan balance on the date of default (including the cure period). Note that the default date is the date that the first payment is missed, but the "cure period" runs through thre end of the following quarter. So in your case, that means the balance on September 30, 2004.

RCK

[pmacduff]

Here's a copy of the 1099-R instructions...it will depend on whether the loan is a "deemed distribution" or offset. Hope this helps.

i1099r04.pdf