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Proposed Regulations Issued To Cover Multiple Loans
[Effective date.] Q&A-9(B) and ©, Q&A-19, Q&A-20, Q&A-22(d), 65 F.R. 46677 (July 31, 2000), supplement final regulations issued today under IRC §72(p) ... The proposed regulations will apply to loans made on or after the first January 1 which is at least six months after the regulations are finalized. Since January 1, 2001, is already less than six months away, the earliest effective date for the rules contained in these proposed regulations will be January 1, 2002 (assuming final regulations are issued by June 30, 2001). For earlier loans, a reasonable, good faith compliance standard applies. Presumably, following these proposed regulations will satisfy this good faith standard.
If a participant receives multiple loans, each loan must satisfy §72(p), taking into account the outstanding balance of each existing loan, as under current rules. The refinancing rules discussed elsewhere; click do not apply because the new loan is not replacing the existing loan(s). However, Proposed Q&A-20(a)(3) [click] establishes a limit of two loans within the same calendar year. The plan may apply this rule on a plan year basis or on the basis of another consistent 12-month period, rather than the calendar year. If a loan is made in violation of this rule, the entire amount is treated as a deemed distribution, even if the limits of IRC §72(p)(2) are otherwise satisfied. The Treasury is concerned that too many loans within a year might circumvent the §72(p)(2) limits, particularly with respect to the $50,000 maximum loan limit under §72(p)(2)(A)(i). Note that this rule will not take effect until these proposed regulations are finalized [see discussion above]. For loans made before the effective date, the plan may allow more than two loans in a year, and the loan limits must be applied to each loan under a reasonable, good faith interpretation of §72(p).