It may not be as complicated as I think, but it is definitely not mainstream stuff that we run into every day. A companion question can run into circumstantial instructions for the issuance of 1099-R.

A 2014 calculation of a client's 401k plan revealed a top-heavy amount due to the client. Normally, there is a refund sent to the participant and a 1099-R issued in the year AFTER the top-heavy amount is calculated. Sure enough, my client has a 1099-R issued in 2015 from the custodian.

In this case, there were options available to the recipient. In lieu of receiving the cash, the client refused it, and allowed the proceeds to be redistributed pro rata to the remaining participants. (There are some 30 other participants enrolled in the plan, other than himself).

To shrink this line of thought into a question, the question would be whether he owes tax on the proceeds he never received, or a companion question is whether the custodian is still obligated to issue a 1099-R even if the money was refused. Client has received a CP2000 from the IRS claiming taxes due on the distribution. If you "follow the money" it would appear that the custodian would have issued additional 1099-Rs to the other participants, or maybe NO 1099s if the redistribution does not result in a cash payment to those participants.

Comments and answers appreciated. Snag