IRC Sec 72(p) has been amended several times since the early 1980's.

[Moe Howard]

I borrowed $90,000 form my partnership's profit sharing plan in 1981. I am a 50% partner. According to the promissory note, I was supposed to pay monthly installments over a 20 year period .... but I made one annual payment at the end of each year (rather than 12 separate monthy payments). I finally paid the entire 35,000 balance off last year. Now I'm trying to determine if the $90,000 was a distribution to me in 1981 (because I may not have followed all the rules). Just one problem ... I can't figure out what the rules are. I've been searching the tax code, ERISA and old tax reform acts for the past four days and I'm as confused as h*ll. It's easy to find the rules presently in effect, but what about the rules that existed in 1981 (that's the hard part).

Here's my questions:

1) It's my understanding that ALL partnership plans are prohibited from making loans to it's partners. (What about my situation ?)

2) It's my understanding that loans are currently supposed to be limited to $50,000. (What about in 1981 ?)

3) It's my understanding that effective 01/01/87, the Tax Reform Act of 1986 amended IRC Sec 72(p)(2) by requiring that all note payments be at least quarterly. (What about my 1981 loan...was I supposed to start making quarterly payments beginning 01/01/87 ?)

4) What is so special about the date "August 13,1982" ? Is that like the date that IRC 72(p) was born into existence. (If so, then was I even required to follow IRC 72(p) on my note since it originated prior to August 13, 1982?)

5) Did any tax code require that I pay this 1981 loan back within 5 years (or is the 5 year requirement simply a new rule that didn't exist back in 1981?)

6) Does anyone know of a web.site that simply & clearly lays out in chronological order all the amended, superseded and current tax rules of defaulted plan loans ?

Hey ...thanks for reading my questions. I don't know if anyone out there can answer them, but I sure hope so.

[MWeddell]

This sounds a bit complicated to resolve just through message board exchanges, but here's a start anyway.

I agree that since you are a partner with > 10% ownership that the loan was prohibited. ERISA Section 408(d) looks like it's been around since ERISA become effective in 1976. The DOL issued guidance six months ago and how to voluntarily correct the situation, plus you'll need to consider IRS excise tax liability under Code Section 4975.

Code Section 72(p) contains the $50,000 limit, the quarterly repayment reqirement, the level amortization requirement, the 5-year limit, etc. It became effective generally for loans made after August 13, 1982. This should be indicated in the amendment notes following Code Section 72(p) if you've got a hard copy of the code by a major publisher. I don't know of a web site that'll list this, but then I've never looked for it. As I recall, some of the requirements were added a couple years later, before the Tax Reform Act of 1986. Because your loan was made before August 13, 1982 and assuming it was never renegotiated or modified after then, you probably "only" have the problems indicated in the preceding paragraph of this posting to worry about.