Deemed Distribution of Loan - Taxation Question

[BTH]

Assume that a participant stops making payments on a loan in November of 1999. The plan allows for a grace period for that extends to the last day of the calendar quarter following the date of the missed payment, or March 31, 2000. The participant does not make any payments by the end of the grace period, making the loan taxable as a deemed distribution.

Is the loan considered taxable in 1999 (the due date of the original payment) or is it taxable in 2000 (taking into account the grace period)?

Thanks.

[MR]

I'd certainly think it would be taxable in 2000. Since 1099 forms are due by January 31st, it wouldn't be possible to properly report the distribution timely.

[k man]

The answer is the failure to make a loan payment when due results in the deemed distribution at the time of the failure. however, the plan administrator may allow a grace period and thus the deemed distribution will not occur until the end of the grace period.

conseqently i agree with the prior post but not for the reason given. a corrected 1099 can always be done. because it is past the deadline is not the correct reason.