In 1998, Mr. White borrowed $12,321 from his 401(k) account to help finance his oldest daughter’s college education. The amount borrowed was one-half of the account balance. The terms of the loan required repayment within 5 years based on level amortization through direct deduction from Mr. White’s paycheck on a semimonthly basis.

On September 7, 2000, petitioners filed a voluntary petition in bankruptcy under chapter 13 of the Bankruptcy Code. Following the meeting of creditors on November 13, 2000, the Bankruptcy Court issued an order, which was entered on the court’s docket on November 14, 2000, confirming the chapter 13 plan and providing notice of a 25-day period within which to object. An objection filed by one creditor was subsequently withdrawn. Accordingly, the court’s order became final, pursuant to its terms, upon expiration of the 25-day period.

During the initial phase of the bankruptcy proceeding, Graphic Packaging continued to deduct loan payments from Mr. White’s paychecks. However, after notification in mid-December 2000 by the bankruptcy trustee regarding the finality of the court’s order confirming petitioners’ chapter 13 plan, Graphic Packaging stopped deducting loan payments from Mr. White’s paychecks.

At the time that Graphic Packaging stopped deducting loan payments from Mr. White’s paychecks, the unpaid loan balance was $6,662. No further loan payments were ever made. After expiration of the “cure” period in 2001, the loan was treated by the plan administrator as having been defaulted.

Fidelity Investments issued a Form 1099-R, Distributions

From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., for 2001 reporting a gross distribution to Mr. White in the amount of $6,662. Petitioners did not report this distribution on their return.

In the notice of deficiency, respondent determined that petitioners were required to include the $6,662 distribution in income. Respondent also determined that the distribution was subject to the 10-percent additional tax under section 72(t) on early distributions from qualified retirement plans. Discussion Issue 1.

Section 402(a) provides generally that distributions from a qualified plan are taxable to the distributee in the taxable year in which the distribution occurs, pursuant to the provisions of section 72. Accordingly, we turn our attention to section 72 and, in particular, to section 72(p)(1)(A), the section of the Internal Revenue Code that treats certain loans from a qualified employer plan to a participant or beneficiary as taxable distributions. See generally Plotkin v. Commissioner , T.C. Memo.

2001-71; Patrick v. Commissioner , T.C. Memo. 1998-30, affd. per curiam without published opinion 181 F.3d 103 (6th Cir. 1999); Prince v. Commissioner , T.C. Memo. 1997-324; Estate of Gray v.

Commissioner

, T.C. Memo. 1995-421. For purposes of section 72(p), a “qualified employer plan” includes a plan described in section 401(a) that includes a trust exempt from tax under section 501(a), and therefore includes Mr. White’s 401(k) plan. See sec. 72(p)(4)(A)(i)(I).

Section 72(p)(1)(A) provides, as a general rule, that if a participant or beneficiary receives, directly or indirectly, any amount as a loan from a qualified employer plan, then such amount shall be treated as having been received by such individual as a distribution under such plan. Thus, under the general rule of section 72(p)(1)(A), the making of a loan from a qualified employer plan gives rise to a deemed distribution that is taxable in the year in which the loan is received.

However, section 72(p)(2)(A) provides an exception for certain loans. Thus, as relevant herein, the mere making of a loan that does not exceed one-half of the nonforteitable accrued benefit of the employee under the plan, that is repayable within 5 years, and that provides for substantially level amortization does not give rise to a deemed distribution. See sec. 72(p)(2)(A)(ii), (B)(i), and (C).

In the present case, there is no dispute that Mr. White defaulted on the 401(k) loan in 2001 upon his failure to make the requisite installment payment within the specified cure period. The record demonstrates that the balance due at the time of the default was $6,662. Thus, pursuant to section 72(p)(1)(A), a distribution is deemed to have been made at such time and in such amount, and, pursuant to section 402(a), the distribution is taxable.

Petitioners contend that they did not receive a taxable distribution because Mr. White was merely borrowing his own money. Although it is true that loan proceeds do not generally Petitioners do not contend that any of the statutory exceptions apply to their case. Rather, they contend that the additional tax should not be imposed because they were precluded from making loan repayments to Mr. White’s 401(k) plan by virtue of the chapter 13 bankruptcy plan.

The short answer to petitioners’ contention is that there is no specific exception under section 72(t)(2) that addresses petitioners’ situation. Rather, this Court has repeatedly held that we are bound by the list of statutory exceptions set forth in section 72(t)(2). Arnold v. Commissioner , 111 T.C. 250, 255 (1998); Schoof v. Commissioner , 110 T.C. 1, 11 (1998); Clark v.

Commissioner

, 101 T.C. 215, 224-225 (1993); Swihart v.

Commissioner

, T.C. Memo. 1998-407. Although the Court is sympathetic to petitioners’ position, we are constrained to sustain respondent’s determination on this issue. Reviewed and adopted as the report of the Small Tax Case Division. To reflect our disposition of the disputed issue, as well as petitioners’ concession, see supra note 2, Decision will be entered for respondent.