1099R Code L1

[Bob Hoffman]

My client has received a 1099R with a distribution code L1 because her prior company closed down her 401(k) plan while she had a loan outstanding. She didn't pay it back and because she is under 50 years of age, it appears that she will have to pay a 10% penalty as well.

I have researched the instructions for form 5329 and find no exceptions that apply. Has anyone had this experience in the past and aware of an out for the penalty?

Thank you.

[OldJack]

No out that I am aware of.

[Jack from Ohio]

There is no exception.

I have a client that was in exactly the same situation, only the 1099R had code "L" in box 7, and to penalty was calculated. CP2000 says otherwise, and the code should have been "L1" instead.

[Bob Hoffman]

No out that I am aware of.

There is no exception.

I have a client that was in exactly the same situation, only the 1099R had code "L" in box 7, and to penalty was calculated. CP2000 says otherwise, and the code should have been "L1" instead.

Thank you gentlemen.