Expert: Allen - 9/22/2009

Question
I took out a loan of $3000 in 1999 or 2000 made one payment in 2001 or 2002; I have paid nothing on it since but I still get a monthly statement. It is with Merrill Lynch can you tell me what I need to do because I cannot pay it. The last statement showed with interest the amt due $44,652.30.

Answer
When you take a loan and don't repay, it continues to show in the plan. While it remains an obligation, the IRS considers it a "deemed distribution" which is taxable. You should have received a 1099 form several years ago and paid tax on the unpaid balance.

Saying that, I'm at a loss to understand why they say you owe over $44,000. Yes the loan continues to accrue interest. However this is absurd. I would contact the Plan Administrator and get an explanation.

If you do repay the correct amount due, you will have what is known as basis for the amount that was previously reported on the 1099 form. So you won't have to pay tax on this amount a second time.