Have a Tax Question? Ask a Tax Expert
Hi, My name is Mark. I will be happy to help you with your questions.
So you paid the taxes associated with the unpaid loan. As well as a early distribution penalty?
Did you receive a 1099-R?
Usually when you have a unpaid loan, you will be issues a 1099-R (so the IRS would not that there was a retirement distribution) and the loan would be closed out.
Do you have a copy of the 2008 return showing the distribution?
Do you have a copy of the audit report?
You would need to go to the administrator of the 403b plan and demonstrate that the unpaid loan was already reported as a distribution.
The IRS would only have information for 6 years back. I believe the 403b plan administrator would have records of the 1099-R submitted for 2008.
For the IRS to make an adjustment on your return there had to be a 1099-R that was filed.
That makes no sense. If you repay the loan now then you paid taxes on a distribution that you never received.
Let's say that your outstanding loan was $10,000. You paid income taxes and a penalty on this unpaid balance. If you now repay this amount the loan would go way but you still paid the tax and the penalty.
I am looking through some information right now. Give me a few moments.
Here is information from the IRS' web site.
If the affected participant isn’t willing to make corrective payments or have the loan re-amortized then the plan or plan sponsor may simply report the unpaid loan amount as a deemed distribution and issue the form 1099-R in the year of correction.
So this is what I previously said. Let me look quickly look at the tax code.
Internal Revenue Code 72(p)(A) states that the following about 403B loans.
If during any taxable year a participant or beneficiary receives (directly or indirectly) any amount as a loan from a qualified employer plan, such amount shall be treated as having been received by such individual as a distribution under such plan.
The exception would be if the loan is being repaid.
This was a qualified loan from your retirement account. Correct?
So when you repay the loan you are essentially paying yourself back.
Your previous response mentions surrendering a contract. Is life insurance involved?
Is Nationwide charging fees? Do you still have a balance in the 403b account?
I completely understand your frustration. It is nonsense.
I am still looking but everything that I am seeing shows that the loan should have been closed when the 1099-R was issued.
I have found that letters work well. Include a copy to your State's Attorney General.
Draft a letter stating the facts that you explained to me. That you had a loan from your 403-B plan. That the loan defaulted and a 1099-R was issued. The loan should have been closed out at this time. However, you are still receiving notice that the loan is still outstanding.
I had a lot of success dealing with large companies using this approach of CC the state's Attorney General.
You are looking for form 1099-R.