Taxpayer rolled over to an IRA a large portion of his balance in an employer savings plan which was correctly reported on a 1099-R as a rollover; the portion which represented the after tax employee contributions (which I believe cannot be rolled over) was reported on a separate 1099-R with the taxable amount in box 2a as zero, the employee contributions in box 5 the same as the gross distribution in box1. Box 7 was coded 1, so now he has received a notice that he owes tax and a 10% penalty for not reporting this as an early distribution. I am confused after researching whether or not a portion of this distribution is in fact taxable and would appreciate any guidance.
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