A deemed distribution occurs if there is a failure to meet the terms of the loan, such as failing to repay the loan timely.
A deemed distribution makes the loan taxable but does not satisfy the loan. The loan must still be repaid, but repayments become after-tax basis in the plan so that the amount is not subject to double taxation. Because you were under age 59½ at the time of the deemed distribution, the taxable amount is also subject to a 10% early-distribution penalty.
