profit share loan
participant 7 years ago takes out a 50,000 loan from profit share and never paid a penny of it back. Now he wants to roll over his 200m p/s balance to TIRA. He was never issued a 1099. TPA says he will issue 1099 before rollover.
yes I realize he should have gotten a 1099 before and yes I realize the whole plan can be disqualified and there are numerous violations and procedures for remedy. My simple questions is this if we can put all the other stuff aside just for a moment.. Should he get a 1099 for the interest he never paid back and if so why?
Permalink Submitted by Denise Appleby on Sat, 2009-03-14 18:50
[quote=”[email protected]“]participant 7 years ago takes out a 50,000 loan from profit share and never paid a penny of it back. Now he wants to roll over his 200m p/s balance to TIRA. He was never issued a 1099. TPA says he will issue 1099 before rollover.
yes I realize he should have gotten a 1099 before and yes I realize the whole plan can be disqualified and there are numerous violations and procedures for remedy. My simple questions is this if we can put all the other stuff aside just for a moment.. [b]Should he get a 1099 for the interest he never paid back and if so why[/b]?[/quote]
Yes, he should.
Reason- regulatory requirement.
Permalink Submitted by BruceM on Sun, 2009-03-15 07:07
[i]Yes, he should.
Reason- regulatory requirement.[/i]
Denise
I have no experience with this kind of loan default on a QRP, so I’m asking….
Assuming this was a personal loan with a 5-year repayment period, shouldn’t the ER have issued a 1099-R as a deemed distribution for the entire loan balance, for the year in which the first quarter that a payment was not received (following any plan allowed grace period) under the provisions of Sec. 72(p), along with a 10% early withdrawal penalty if
Permalink Submitted by Martin Helmer on Wed, 2009-03-18 03:00
The section 72(p) code and regulations contain many permutations. Normally you’d expect a deemed distribution like Bruce describes. But there are situations where the plan won’t do this.
With a deemed distribution normally the plan continues to show the loan receivable on its books and continues to accrue interest. This amount still is shown as part of the employee’s account balance. A law change about 8 years ago provides the interest accruing after a deemed distribution is not taxable. Another variable is in the calculation of interest/earnings. Most plans have self directed accounts, in which the loan is solely the ‘investment’ of the 1 borrower. But for some plans the loan is an investment belonging to the whole plan. All the plan participants ‘share’ in the accrued interest.
In the current situation I’d usually expect to see the plan issue 1 1099-R for a ‘distribution’ amount including both the $50K principal plus accrued interest plus however much the employee has left after subtracting the first two amounts. Apparently this plan is going to issue a separate 1099-R for the loan plus interest. Chances are the plan was supposed to deem the distribution 7 years ago.
I don’t know if it’s feasible to amend a 7 year old return. If you can believe what’s on the web, the statute of limitations is 7 years if you’ve understated income by 20% or more.