IRS Memorandum Addresses Multiple Participant Plan Loans:


In an April 20, 2017 memorandum to its employee benefit plans examinations staff, the IRS provided guidance on the narrow issue of the amount of money available for a loan when a participant has received multiple loans from a qualified plan during the past year. The memorandum begins by explaining that under Internal Revenue Code Section 72, if the first loan is less than $50,000, then the participant generally can take another loan from the plan within a year of the first loan if the aggregate amount of both loans does not exceed $50,000. Also, that $50,000 limit must generally be reduced by the highest outstanding balance of the participant’s plan loans during the one-year period that ends the day before the second loan is taken. With respect to that reduction, the memorandum provides as follows:  “For example, a participant borrowed $30,000 in February which was fully repaid in April, and $20,000 in May which was fully repaid in July, before applying for a third loan in December. The plan may determine that no further loan would be available, since $30,000 + $20,000 = $50,000. Alternatively, the plan may identify “the highest outstanding balance” as $30,000, and permit the third loan in the amount of $20,000. At this time, the law does not clearly preclude either computation of the highest outstanding loan balance in the above example.”

The memorandum directs plans examinations staff to handle these multiple-loan situations by ascertaining whether the plan has computed the highest outstanding balance in one of the two ways described in the example provided above. Finally, although the memorandum states that “[t]his is not a pronouncement of law and is not subject to use, citation, or reliance as such,” it does provide insight as to how IRS plan examiners will address this issue.

Here is a link to the memorandum: