1099 R distribution Code E

[Jason]

I have a client who had a 1099R with a distribution code E (Distributions under Employee Plans Compliance Resolution System). The tax software computed the distribution as not taxable. The client now has an IRS letter stating it should was not reported. Not sure what the correct answer is to this?

[Burke]

Your client should also have received a letter from his company regarding this distribution (actually an ineligible qualified contribution) which may have involved an IRA rollover in some cases. Code E is for the occasion when plan administrators correct a previous error in retirement plan contributions usually applicable to highly-compensated employees. It may be taxable and could be subject to the 6% excess contribution tax as well. You need to know exactly what happened and what years were involved to adjust properly. See Page 7 of Instructions for Forms 1099R & 5498 to start. Various other sources are also referenced in this section related to EPCRS.