Pinn v. Comr., T.C. Memo. 2013-45

 (plaintiffs, brothers, established an employee plan for their construction business employees; plan was I.R.C. Sec. 419 plan that provided for death benefits for management  and unlimited deductions for payments to plan; plan bought life insurance for beneficiaries who could borrow against cash surrender value of their policies, but were required to pay back any loans (with interest) with any unpaid loans at death coming out of death benefit; if employment terminated, plan discontinued or employer discontinues, benefit eliminated; employee could make irrevocable designation of life insurance; plaintiffs borrow from plan and sign promissory notes, but made only nominal payment on loan; plan made no attempt to collect or hold plaintiffs in default; plan trustee disclosed loans to IRS on Form 5500 (Schedule G) claiming loans were secured and will be paid when mature and are not uncollectible; at answer stage of pleading, IRS claimed plaintiffs had cancellation of indebtedness income (CODI); IRS stipulates at trial that loans are bona fide and that trust had collection policy requiring demand letter to be issued to borrowers in default and that Forms 1099 would be sent to borrowers that remained delinquent; no demand letter sent to either plaintiff in 2002, so IRS concluded that trust intended to forgive loans and CODI resulted in 2002; however, court noted that trust had no policy for collection of delinquent loans until 2002; plaintiffs' right to receive proceeds not highly contingent; no CODI until company leaves plan, either or both of plaintiffs leaves company or plan ceases; Form 5500 did not necessary mean that loans uncollectible in year issued - merely in default).