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The penalties and interest for a distribution from a deferred retirement account are the responsibility of the taxpayer. In this case the reporting of the distribution was on your husband so his estate will be looked to for the payment.If the company allowed your deceased husband to borrow against the 401K then they were not responsible for reporting the event for tax purposes. If he received a distribution from the 401K then that should have been shown on the 1099R and a copy of the 1099R should have been sent tot he IRS as well. The estate can request that penalties be abated on the grounds that no 1099R was issued but the interest is required by law and cannot be reduced or abated unless the IRS gives written advice that is incorrect and results in interest.If the money was a loan against the 401K then the amount would not be reported until the loan was in default or the employee was no longer making the payments to pay the loan back. That would then make the remaining amount on the loan taxable and a 1099R would have been issued.The company will have it's own penalty for not issuing a tax reporting document within the timeframe required if the IRS pursues the issue and the company cannot show that they did report the event.