Rationale as to why loans are not permitted to owner-employees

[Guest Martha A. Hayner]

what is the rationale as to why owner-employees are not permitted to take loans under IRC 4975

[R. Butler]

Just a guess, but it may have something to do with the basic premise that qualified plans must be established soley for the benefit of the employees. In sole proprieter, partnership, LLC scenario the owner-employee is the employer. In the C-corp. scenario the business is a separate entity, thus loans to shareholders are allowed.