Loans to Plan Participants

DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Part 1 [REG-209476-82] RIN 1545-AE41

TITLE: Loans to Plan Participants

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document amends proposed Income Tax Regulations under
section 72(p) of the Internal Revenue Code relating to loans made
from a qualified employer plan to plan participants or
beneficiaries. Section 72(p) was added by section 236 of the Tax
Equity and Fiscal Responsibility Act of 1982, and amended by the
Technical Corrections Act of 1982, the Deficit Reduction Act of
1984, the Tax Reform Act of 1986 and the Technical and Miscellaneous
Revenue Act of 1988. These regulations provide guidance to the
public with respect to section 72(p), and affect administrators of,
participants in, and beneficiaries of qualified employer plans that
permit participants or beneficiaries to receive loans from the plan
(including loans from section 403(b) contracts and other contracts
issued under qualified employer plans).

DATES: Written comments and requests for a public hearing must be
received by April 2, 1998.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-209476-82), room
5226, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand delivered between the
hours 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG-209476- 82),
Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue
NW, Washington, DC. Alternatively, taxpayers may submit comments
electronically via the Internet by selecting the "Tax Regs" option
on the IRS Home Page, or by submitting comments directly to the IRS
Internet site at
http://www.irs.ustreas.gov/prod/tax_regs/comments.html.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Vernon
S. Carter, (202) 622-6070; concerning submissions or requests to
speak at the hearing, La Nita VanDyke, (202) 622-7190 (not toll-free
numbers).

SUPPLEMENTARY INFORMATION:

Background

This document contains proposed amendments to the Proposed Income
Tax Regulations (26 CFR Part 1) under section 72 of the Internal
Revenue Code of 1986 (Code). These amendments provide additional
guidance concerning the tax treatment of loans that are deemed to be
distributed under section 72(p).

Explanation of Provisions

Section 72(p)(1)(A) provides that a loan from a qualified employer
plan (including a contract purchased under a qualified employer
plan) to a participant or beneficiary is treated as received as a
distribution from the plan for purposes of section Proposed §
1.72(p)-1 (EE-106-82) was published in the 1 Federal Register (60 FR
66233) on December 21, 1995.

72 (a deemed distribution). Section 72(p)(1)(B) provides that an
assignment or pledge of (or an agreement to assign or pledge) any
portion of a participant's or beneficiary's interest in a qualified
employer plan is treated as a loan from the plan.

Section 72(p)(2) provides that section 72(p)(1) does not apply to
the extent certain conditions are satisfied.

Specifically, under section 72(p)(2), a loan from a qualified
employer plan to a participant or beneficiary is not treated as a
distribution from the plan if the loan satisfies requirements
relating to the term of the loan and the repayment schedule, and to
the extent the loan satisfies certain limitations on the amount
loaned.

Regulations were proposed in 1995 with respect to many of the issues
arising under section 72(p)(2). The preamble to the 1995 proposed
regulations requested comments on whether further guidance should be
provided on certain issues that were not addressed. Following
publication of the 1995 proposed regulations, comments were received
and a public hearing was held on June 28, 1996. One of the issues on
which comments were requested and received was the effect of a
deemed distribution on the tax treatment of subsequent distributions
from a plan (such as whether a participant has tax basis as a result
of a deemed distribution). After reviewing the written comments and
comments made at the public hearing, these new proposed regulations
This treatment applies for purposes of determining the amount
taxable under section 72 (including application of return of tax
basis). However, as discussed below, the loan is still considered
outstanding for purposes of determining the maximum amount of any
subsequent loan to the participant under section 72(p)(2)(A). Even
though interest continues to accrue on the outstanding loan and is
taken into account for purposes of determining the maximum amount of
any subsequent loan, this additional interest is not treated as an
additional loan that results in a further deemed distribution for
purposes of section 72(p).

With respect to coverage under Title I of the Employee Retirement
Income Security Act of 1974, the Department of Labor has advised the
Service that an employer's tax-sheltered annuity program would not
necessarily fail to satisfy the Department's regulation at 29 CFR
2510.3-2(f) merely because the employer permits employees to make
repayments of loans made in connection with the tax-sheltered
annuity program through payroll deductions as part of the employer's
payroll deduction system, if the program operates within the
limitations set by that regulation.

address this issue.

These new proposed regulations provide that once a loan is deemed
distributed under section 72(p), the interest that accrues
thereafter on that loan is not included in income. Further, because
the loan amount is treated as distributed for purposes of section
72, neither the income that resulted from the deemed distribution
nor the interest that accrues thereafter increases the participant's
investment in the contract (tax basis) for purposes of section 72.

For example, assume that, after a loan has been made from a defined
contribution plan to a participant, a deemed distribution occurs as
a result of failure to make timely loan repayments (e.g., the
repayments were not to be made by payroll withholding ). The
participant's total account then consists of non-loan assets and a
receivable for the loan balance. At separation from employment, the
participant's vested account balance is reduced (offset) by the loan
amount and the remaining account balance is distributed in a lump
sum to the participant.

In this case, in addition to the income that previously arose as a
result of the deemed distribution due to the failure to make timely
payments on the loan, the participant would have a taxable
distribution at separation from employment for the remaining account
balance reflecting the non-loan assets that are distributed in a
lump sum (with no tax basis as a result of the prior deemed
distribution of the loan amount). The offset of the loan balance
(i.e., the offset of the loan receivable by the loan amount) would
be disregarded for purposes of section 72 because the loan had
previously been deemed distributed as a result of the failure to
make timely payments on the loan.

A loan that is deemed distributed under section 72 is nevertheless
outstanding for other purposes until the loan obligation is
satisfied (e.g., by cash repayment or by offset against the
participant's accrued benefit). Q&A-13 of the 1995 proposed
regulations lists other differences between a deemed distribution
and a loan offset. In addition, for purposes of calculating the
maximum permitted amount of any subsequent loan, a loan that has
been deemed distributed is considered outstanding until the loan
obligation has been satisfied.

The proposed regulations also provide that if a participant makes
any cash repayments on a loan after the loan is deemed distributed,
the repayments increase the participant's tax basis in the plan in
the same manner as if the repayments were after-tax contributions.
However, such repayments are not treated as after-tax contributions
for purposes of section 401(m) or 415(c)(2)(B).

These regulations are proposed to become effective for loans made on
or after the first January 1 that is at least 6 months after the
date the regulations are published as final regulations in the
Federal Register (the regulatory effective date). These regulations
also revise the proposed effective date for the 1995 proposed
regulations, so that the same Proposed Effective Date

would apply to the 1995 proposed regulations and these proposed
regulations.

Generally, a plan is permitted to apply the new proposed regulations
to loans made before the regulatory effective date.

However, the regulations include a special consistency rule
applicable if there has been any deemed distribution of the loan
before the date the plan switches to the new proposed regulations
for the loan. In this event, a plan is not permitted to apply the
new proposed regulations to the loan unless the plan reported, in
Box 1 of Form 1099-R, a gross distribution with respect to the loan
that is at least equal to the amount required by the 1995 proposed
regulations (referred to as the initial default amount in the new
proposed regulations) for a taxable year that is not later than the
latest year that would be permitted under the 1995 proposed
regulations. In such a case, the plan may apply the new proposed
regulations to the loan even though, in the past, the plan reported
deemed distributions with respect to the loan in a manner that is
not consistent with the new proposed regulations.

If a plan does apply the new proposed regulations to a pre-
regulatory effective date loan that has been deemed distributed,
then the plan, in its subsequent reporting and withholding, must not
attribute investment in the contract (tax basis) to the participant
based upon the initial default amount. For example, a plan that
reported income for the initial default amount plus all interest
accruing thereafter as a result of the default and made
corresponding increases in the participant's tax basis would comply
with this consistency rule by reducing the participant's tax basis
by an amount equal to the initial default amount. In addition, a
special rule applies if a plan had increased a participant's tax
basis by the initial default amount and, just before the first
actual distribution made after the plan switches to applying the new
proposed regulations to the loan, the sum of the participant's tax
basis immediately before the switch plus any increase in basis
thereafter (e.g., from after-tax contributions) is less than the
initial default amount (as a result of intervening distributions).
In this case, a loan transition amount equal to the amount by which
the initial default amount exceeds the participant's tax basis is
treated as remaining outstanding and that amount is includible in
the participant's income at the time of the next actual distribution
from the plan to the participant. The proposed regulations include
examples illustrating the application of the consistency rule.

Comments are requested on whether the final regulations should
include further guidance relating to plan loans made to participants
before the regulatory effective date.

Taxpayers may rely on these proposed regulations for guidance
pending the issuance of final regulations. If, and to the extent,
future guidance is more restrictive than the guidance in these
proposed regulations, the future guidance will be applied without
retroactive effect.

Special Analyses

It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in EO 12866.
Therefore, a regulatory assessment is not required.

It has also been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to
these regulations, and because the regulation does not impose a
collection of information on small entities, the Regulatory
Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to
section 7805(f) of the Internal Revenue Code, this notice of
proposed rulemaking will be submitted to the Chief Counsel for
Advocacy of the Small Business Administration for comment on its
impact on small business.

Comments and Requests for a Public Hearing Before these proposed
regulations are adopted as final regulations, consideration will be
given to any written comments that are submitted timely (preferable
a signed original and eight copies) to the IRS. All comments will be
available for public inspection and copying. A public hearing will
be scheduled if requested in writing by a person that timely submits
written comments. If a public hearing is scheduled, notice of the
date, time and place for the hearing will be published in the
Federal Register.

Drafting Information

The principal author of these regulations is Vernon S.

Carter, Office of Associate Chief Counsel (Employee Benefits and
Exempt Organizations). However, other personnel from the IRS and
Treasury Department participated in their development.

List of Subjects in 26 CFR Part 1 Income taxes, Reporting and
recordkeeping requirements.

Amendments to the Previously Proposed Regulations Accordingly, 26
CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

Paragraph 1. The authority citation for part 1 continues to read, in
part, as follows:

Authority: 26 U.S.C. 7805. * * *

Par. 2. Section 1.72(p)-1 of the proposed regulations published
December 21, 1995, (60 FR 66233) is amended as follows:

1. Q&A-19 is redesignated as Q&A-21.

2. New Q&A-19 and Q&A-20 are added.

3. Q&A-21, as redesignated, is revised.

The additions and revision read as follows:

§ 1.72(p)-1 Loans treated as distributions.

* * * * *

Q-19: If there is a deemed distribution under section 72(p), is the
interest that accrues thereafter on the amount of the deemed
distribution an indirect loan for income tax purposes?

A-19: (a) General rule. Except as provided in paragraph (b) of this
Q&A-19, a deemed distribution of a loan is treated as a distribution
for purposes of section 72. Therefore, a loan that is deemed to be
distributed under section 72(p) ceases to be an outstanding loan for
purposes of section 72, and the interest that accrues thereafter
under the plan on the amount deemed distributed is disregarded in
applying section 72 to the participant or beneficiary. Even though
interest continues to accrue on the outstanding loan (and is taken
into account for purposes of determining the tax treatment of any
subsequent loan in accordance with paragraph (b) of this Q&A-19),
this additional interest is not treated as an additional loan (and,
thus, does not result in an additional deemed distribution) for
purposes of section 72(p). However, a loan that is deemed
distributed under section 72(p) is not considered distributed for
all purposes of the Internal Revenue Code. See Q&A-11 through Q&A-16
of this section.

(b) Exception for purposes of applying section 72(p)(2)(A) to a
subsequent loan. A loan that is deemed distributed under section
72(p) (including interest accruing thereafter) and that has not been
repaid (such as by a plan loan offset) is considered outstanding for
purposes of applying section 72(p)(2)(A) to determine the maximum
amount of any subsequent loan to the participant or beneficiary.

Q-20: Is a participant's tax basis in the plan increased if the
participant repays the loan after a deemed distribution?

A-20: (a) Repayments after deemed distribution. Yes, if the
participant or beneficiary repays the loan after a deemed
distribution of the loan under section 72(p), then, for purposes of
section 72(e), the participant's or beneficiary's investment in the
contract (tax basis) under the plan increases by the amount of the
cash repayments that the participant or beneficiary makes on the
loan after the deemed distribution. However, loan repayments are not
treated as after-tax contributions for other purposes, including
sections 401(m) and 415(c)(2)(B).

(b) Example. The following example illustrates the rules in
paragraph (a) of this Q&A-20 and is based on the assumptions
described in ASSUMPTIONS FOR EXAMPLES:

Example. (a) A participant receives a $20,000 loan on January 1,
1999, to be repaid in 20 quarterly installments of $1,245 each. On
December 31, 1999, the outstanding loan balance ($19,179) is deemed
distributed as a result of a failure to make quarterly installment
payments that were due on September 30, 1999 and December 31, 1999.
On June 30, 2000, the participant repays $5,147 (which is the sum of
the three installment payments that were due on September 30, 1999,
December 31, 1999, and March 31, 2000, with interest thereon to June
30, 2000, plus the installment payment that was due on June 30,
2000). Thereafter, the participant resumes making the installment
payments of $1,245 from September 30, 2000 through December 31,
2003. The loan repayments made after December 31, 1999 through
December 31, 2003 total $22,577.

(b) Because the participant repaid $22,577 after the deemed
distribution that occurred on December 31, 1999, the participant has
investment in the contract (tax basis) equal to $22,577 as of
December 31, 2003.

Q-21: When is the effective date of section 72(p) and these
regulations?

A-21: (a) Statutory effective date. Section 72(p) generally applies
to assignments, pledges, and loans made after August 13, 1982.

(b) Regulatory effective date. This section applies to assignments,
pledges, and loans made on or after the first January 1 that is at
least 6 months after the date of publication of the final
regulations in the Federal Register (the regulatory effective date).

(c) Loans made before the regulatory effective date -- (1) General
rule. A plan is permitted to apply Q&A-19 and Q&A-20 of this section
to a loan made before the regulatory effective date (and after the
statutory effective date in paragraph (a) of this Q&A-21) if there
has not been any deemed distribution of the loan before the
transition date or if the conditions of paragraph (c)(2) of this
Q&A-21 are satisfied with respect to the loan.

(2) Consistency transition rule for certain loans deemed distributed
before the regulatory effective date. (i) The rules in this
paragraph (c)(2) apply to a loan made before the regulatory
effective date (and after the statutory effective date in paragraph
(a) of this Q&A-21) if there has been any deemed distribution of the
loan before the transition date.

(ii) The plan is permitted to apply Q&A-19 and Q&A-20 of this
section to the loan beginning on any January 1, but only if the plan
reported, in Box 1 of Form 1099-R, for a taxable year no later than
the latest taxable year that would be permitted under this section,
a gross distribution of an amount at least equal to the initial
default amount. For purposes of this section, the initial default
amount is the amount that would be reported as a gross distribution
under Q&A-4 and Q&A-10 of this section and the transition date is
the January 1 on which a plan begins applying Q&A-19 and Q&A-20 of
this section to a loan.

(iii) If a plan applies Q&A-19 and Q&A-20 of this section to such a
loan, then the plan, in its reporting and withholding on or after
the transition date, must not attribute investment in the contract
(tax basis) to the participant or beneficiary based upon the initial
default amount.

(iv) This paragraph (c)(2)(iv) applies if--

(A) The plan attributed investment in the contract (tax basis) to
the participant or beneficiary based on the deemed distribution of
the loan;

(B) The plan subsequently made an actual distribution to the
participant or beneficiary before the transition date; and

(C) Immediately before the first actual distribution made on or
after the transition date, the initial default amount (or, if less,
the amount of the investment in the contract so attributed) exceeds
the sum of the participant's or beneficiary's investment in the
contract (tax basis) immediately before the transition date plus any
increase in the participant's or beneficiary's investment in the
contract (tax basis) on or after the transition date. If this
paragraph (c)(2)(iv) applies, the plan must treat the excess (the
loan transition amount) as a loan amount that remains outstanding
and must include the excess in the participant's or beneficiary's
income at the time of the actual distribution.

(3) Examples. The rules in paragraph (c)(2) of this Q&A-21 are
illustrated by the following examples, which are based on the
assumptions described in ASSUMPTIONS FOR EXAMPLES (and, except as
specifically provided in the examples, also assume that no
distributions are made to the participant and that the participant
has no investment in the contract with respect to the plan). Example
1, Example 2, and Example 4 illustrate the application of these
rules to a plan that, before the transition date, did not treat
interest accruing after the initial deemed distribution as resulting
in additional deemed distributions under section 72(p). Example 3
illustrates the application of these rules to a plan that, before
the transition date, treated interest accruing after the initial
deemed distribution as resulting in additional deemed distributions
under section 72(p).

Example 1. (a) In 1995, when a participant's account balance under a
plan is $50,000, the participant receives a loan from the plan. The
participant makes the required repayments until 1996 when there is a
deemed distribution of $20,000 as a result of a failure to repay the
loan. For 1996, as a result of the deemed distribution, the plan
reports, in Box 1 of Form 1099- R, a gross distribution of $20,000
(which is the initial default amount in accordance with paragraph
(c)(2)(ii) of Q&A-21 of this section) and, in Box 2 of Form 1099-R,
a taxable amount of $20,000. The plan then records an increase in
the participant's tax basis for the same amount ($20,000).
Thereafter, the plan disregards, for purposes of section 72, the
interest that accrues on the loan after the 1996 deemed
distribution. Thus, as of December 31, 1998, the total taxable
amount reported by the plan as a result of the deemed distribution
is $20,000 and the plan's records show that the participant's tax
basis is the same amount ($20,000). As of January 1, 1999, the plan
decides to apply Q&A-19 of this section to the loan. Accordingly, it
reduces the participant's tax basis by the initial default amount of
$20,000, so that the participant's remaining tax basis in the plan
is zero. Thereafter, the amount of the outstanding loan is not
treated as part of the account balance for purposes of section 72.
The participant attains age 59-1/2 in the year 2000 and receives a
distribution of the full account balance under the plan consisting
of $60,000 in cash and the loan receivable. At that time, the plan's
records reflect an offset of the loan amount against the loan
receivable in the participant's account and a distribution of
$60,000 in cash.

(b) For the year 2000, the plan must report a gross distribution of
$60,000 on Box 1 of Form 1099-R and a taxable amount of $60,000 in
Box 2 of Form 1099-R.

Example 2. The facts are the same as in Example 1, except that in
1996, immediately prior to the deemed distribution, the
participant's account balance under the plan totals $50,000 and the
participant's tax basis is $10,000. For 1996, the plan reports, in
Box 1 of Form 1099-R, a gross distribution of $20,000 (which is the
initial default amount in accordance with paragraph (c)(2)(ii) of
Q&A-21 of this section) and reports, in Box 2 of Form 1099-R, a
taxable amount of $16,000 (the $20,000 deemed distribution minus
$4,000 of tax basis ($10,000 times ($20,000/$50,000)) allocated to
the deemed distribution). The plan then records an increase in tax
basis equal to the $20,000 deemed distribution, so that the
participant's remaining tax basis as of December 31, 1996 totals
$26,000 ($10,000 minus $4,000 plus $20,000). Thereafter, the plan
disregards, for purposes of section 72, the interest that accrues on
the loan after the 1996 deemed distribution. Thus, as of December
31, 1998, the total taxable amount reported by the plan as a result
of the deemed distribution is $16,000 and the plan's records show
that the participant's tax basis is $26,000. As of January 1, 1999,
the plan decides to apply Q&A-19 of this section to the loan.
Accordingly, it reduces the participant's tax basis by the initial
default amount of $20,000, so that the participant's remaining tax
basis in the plan is $6,000. Thereafter, the amount of the
outstanding loan is not treated as part of the account balance for
purposes of section 72. The participant attains age 59-1/2 in the
year 2000 and receives a distribution of the full account balance
under the plan consisting of $60,000 in cash and the loan
receivable. At that time, the plan's records reflect an offset of
the loan amount against the loan receivable in the participant's
account and a distribution of $60,000 in cash.

(b) For the year 2000, the plan must report a gross distribution of
$60,000 on Box 1 of Form 1099-R and a taxable amount of $54,000 in
Box 2 of Form 1099-R.

Example 3. (a) In 1990, when a participant's account balance in a
plan is $100,000, the participant receives a loan of $50,000 from
the plan. The participant makes the required loan repayments until
1992 when there is a deemed distribution of $28,919 as a result of a
failure to repay the loan. For 1992, as a result of the deemed
distribution, the plan reports, in Box 1 of Form 1099-R, a gross
distribution of $28,919 (which is the initial default amount in
accordance with paragraph (c)(2)(ii) of Q&A-21 of this section) and,
in Box 2 of Form 1099-R, a taxable amount of $28,919. For 1992, the
plan also records an increase in the participant's tax basis for the
same amount ($28,919).

Each year thereafter through 1998, the plan reports a gross
distribution equal to the interest accruing that year on the loan
balance, reports a taxable amount equal to the interest accruing
that year on the loan balance reduced by the participant's tax basis
allocated to the gross distribution, and records a net increase in
the participant's tax basis equal to that taxable amount. As of
December 31, 1998, the taxable amount reported by the plan as a
result of the loan totals $44,329 and the plan's records for
purposes of section 72 show that the participant's tax basis totals
the same amount ($44,329). As of January 1, 1999, the plan decides
to apply Q&A-19 of this section.

Accordingly, it reduces the participant's tax basis by the initial
default amount of $28,919, so that the participant's remaining tax
basis in the plan is $15,410 ($44,329 minus $28,919) as of December
31, 1999. Thereafter, the amount of the outstanding loan is not
treated as part of the account balance for purposes of section 72.
The participant attains age 59-1/2 in the year 2000 and receives a
distribution of the full account balance under the plan consisting
of $180,000 in cash and the loan receivable equal to the $28,919
outstanding loan amount in 1992 plus interest accrued thereafter to
the payment date in 2000. At that time, the plan's records reflect
an offset of the loan amount against the loan receivable in the
participant's account and a distribution of $180,000 in cash.

(b) For the year 2000, the plan must report a gross distribution of
$180,000 in Box 1 of Form 1099-R and a taxable amount of $164,590 in
Box 2 of Form 1099-R ($180,000 minus the remaining tax basis of
$15,410).

Example 4. (a) The facts are the same as in Example 1, except that
in 1997, after the deemed distribution, the participant receives a
$10,000 hardship distribution. At the time of the hardship
distribution, the participant's account balance under the plan
totals $50,000. For 1997, the plan reports, in Box 1 of Form 1099-R,
a gross distribution of $10,000 and, in Box 2 of Form 1099-R, a
taxable amount of $6,000 (the $10,000 actual distribution minus
$4,000 of tax basis ($10,000 times ($20,000/$50,000)) allocated to
this actual distribution).

The plan then records a decrease in tax basis equal to $4,000, so
that the participant's remaining tax basis as of December 31, 1997
totals $16,000 ($20,000 minus $4,000). After 1996, the plan
disregards, for purposes of section 72, the interest that accrues on
the loan after the 1996 deemed distribution. Thus, as of December
31, 1998, the total taxable amount reported by the plan as a result
of the deemed distribution plus the 1997 actual distribution is
$26,000 and the plan's records show that the participant's tax basis
is $16,000. As of January 1, 1999, the plan decides to apply Q&A-19
of this section to the loan.

Accordingly, it reduces the participant's tax basis by the initial
default amount of $20,000, so that the participant's remaining tax
basis in the plan is reduced from $16,000 to zero.

However, because the $20,000 initial default amount exceeds $16,000,
the plan records a loan transition amount of $4,000 ($20,000 minus
$16,000). Thereafter, the amount of the outstanding loan, other than
the $4,000 loan transition amount, is not treated as part of the
account balance for purposes of section 72. The participant attains
age 59-1/2 in the year 2000 and receives a distribution of the full
account balance under the plan consisting of $60,000 in cash and the
loan receivable. At that time, the plan's records reflect an offset
of the loan amount against the loan receivable in the participant's
account and a distribution of $60,000 in cash.

(b) In accordance with paragraph (c)(2)(iv) of Q&A-21 of this
section, the plan must report in Box 1 of Form 1099-R a gross
distribution of $64,000 and in Box 2 of Form 1099-R a taxable amount
for the participant for the year 2000 equal to $64,000 (the sum of
the $60,000 paid in the year 2000 plus $4,000 as the loan transition
amount).

Michael Dolan
Deputy Commissioner Internal Revenue

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