Have a Tax Question? Ask a Tax Expert
Seems as the administrator of your 401k account was following rules that you had two months to pay back your loan before it was deemed as distribution.
So you outstanding loan balance was deemed as distribution not at the time of termination but at the time you passed the deadline to repay the balance.
And that happened in 2008.
Yes - that is your 2008 taxable income and you need to report it on your 2008 tax return.