Defaulted Retirement Plan Loan Included in Income; Penalties Imposed (Bormet, TCM)

A retirement plan loan was included in the taxpayer’s income as an early distribution after he defaulted on his repayment. The taxpayer’s failure to maintain the repayment schedule while he was on disability leave caused the loan to go into default.

Defaulted Plan Loan

He did not provide evidence of the original terms of the retirement plan loan, his claimed refinancing of it, or his disability income. Since the distribution occurred before he reached the age of 59-1/2, he was also liable for the additional tax on early distributions. Finally, he was liable for the accuracy-related penalty absent evidence he acted with reasonable cause and in goof faith.

J.E. Bormet, TC Memo. 2017-201, Dec. 61,045(M)



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