IRS Releases Final and Proposed Plan Loan Regulations

Washington, DC, August 2, 2000 -The Internal Revenue Service has issued final and proposed regulations regarding the tax treatment of loans from qualified employer plans to plan participants. The final regulations adopt, with modifications, prior proposals published in December 1995 and January 1998. The proposed regulations address loan repayment obligations during periods of military service and the tax treatment of refinancing and multiple loans to participants. Comments on the proposed regulations are due by October 31, 2000.

The final regulations specifically permit an electronic medium to be used for a loan agreement, as long as standards set forth in the regulation are satisfied. The regulations also clarify that, as long as a signature is not required in order for the loan to be enforceable under applicable law, the agreement need not be signed.

The proposed regulations address the suspension of loan repayments for periods during which a participant is performing military service, and the tax treatment of refinancing and multiple loan arrangements to a participant.

The Service also requested comments on the effect of the Electronic Signatures in Global and National Commerce Act on the final regulations and on any guidance needed to apply the Act to plan loan transactions.