Dr. has a $70,000 loan during 2004. What is the correction method?

[Guest vqualplan]

THis is a takeover plan that was administered by a CPA who apparently did not know that the maximum loan allowd was $50,000.

It is my understanding that this is a prohibitive transaction and a Form 5330 should be filed. I would also imagine we need to instruct the Dr to immediately pay the loan off to get the outstanding value under $50,000.

Are there any reporting requirements on the 5500?

Any advice or links with more detail would be appreciated.

Thanks!

[JanetM]

Seems to me in addition you have to have deemed distribution of the excess $20,000.

[mbozek]

Why isnt the entire loan a lump sum because the loan was invalid at inception? I guess the CPA has malpractice ins. see Reg 1.72(p)-1 A -1 loan is valid at inception if it limits loan to amount under 72(p)(2)(A).