Late and defaulted Loans

[Guest JeffRed]

I hope somebody's available to help me out in this short week. I've inherited a plan with lots of loan problems.

1. An employee took a $2,500 loan on 10/19/04.

a. The first payment was not made until 1/24/2007 (Well outside the Grace period, should the loan be defaulted as of 3/31/05)

b. Here we are in November 2010 and the participant is still paying down the principal of the loan. Maturity date is 11/06/09.

c. Would I have the option of defaulting as of the maturity date or less likely at 3/31/10(Maturity plus grace periord)

d. Must the 1099 include interest accured through the date the loan is defaulted

2. I have several other loans that haven't gone past the maturity date but did have more the two quarters without a single payment. Do I have the option of re-amortizing those, keeping the same maturity date. Or do they have to be deemed at the end of the quarter following the quarter of the missed payment.

-We are taking this client through VCP as they are still operating on a pre-GUST doc so we can easily tack on items for correction. This plan is audit size and I have no idea how it go so far out of whack. Any help is greatly appreciated.

[Tom Poje]

loans can only be corrected under VCP anyway, so who knows what the IRS will say.

section 6.07(2)(a) of EPCRS [rev proc 2008-50] which clearly says that corrections are not available if the loan has exceeded the max period available for repayment of the loan.

6.07(1) says that the 1099R can be for the year corrected (and interestingly enough) any applicable income tax paid by the employer. plan sponsor must specifically request such relief.

I'd print out a copy of those sections and specifically highlihht or whatever and go from there

again, who knows what the IRS will do or handle under VCP.

[Guest JeffRed]

Thanks a bunch Tom, I thought VCP was the way to go but was hoping for an easier fix.