401k loan default

[JT2307]

Taxpayer was let go by employer and they rolled over the retirement and then there was a 1099-r issued for default on a loan they had thru the . They were later rehired by the company.

They are trying to tell me that because they were let go that the amount of the loan is not subject to the 10% penalty I can't find an exception for that and they are under the age of 55.

Am I missing something?

[Burke]

Never heard of that one! He should have been given the opportunity to repay the loan before distribution. Apparently, he did not. So it is considered deemed income in the year of distribution.

[dkss]

Second what Burke said

[JT2307]

And

subject to 10% penalty!