ESOP Distribution

[Unregistered]

My client was a participant in an ESOP. He left employment with this employer and had the value of this account distributed to him. He properly executed a trustee to trustee transfer of the assets in his account to a Traditional IRA. He has received a 1099-
R for the transfer with a taxable amount of roughly 95% of the account value and code 1 in box 7. Am I wrong in believing that this is supposed to be a non-taxable distribution with a 2 in box 7? Are there different rules for rollovers from ESOP's? This is not referenced in TTB.

Thanks!

[OldJack]

The ESOP has no way of knowing that your client rolled over any proceeds he took so they correctly show it as a taxable distribution on a 1099-R. Had the client transfered the account by direct transfer there would be no 1099-R.

Any non-taxable portion is not allowed to be rolled into a Traditional IRA.

I show the 1099R amount on the regular line of the tax return but show as zero taxable with an explanation that there was a roll over on line 21.