The situations that allow for the abatement of the 10% penalty are fairly straight-forward as expressed by the IRS ( ) AND there is no dispute he withdrew the funds as shown by the Form 1099-R. That is pretty much a done deed. Pay the tax and pay the penalty.

What happened to those funds afterwards is the crucial issue. Then you are talking about potential fraud issues, lawsuits, perhaps partial recovery, etc. But that could take time as well as some serious attorney fees, even if a class action suit springs up to recover something. The time period for a "qualifying rollover" of the $100k is certainly closed by now.

I think the likely best case scenario is recovering some portion of the "invested" $100k with or without assessed punitive damages. If all of the pieces fit together properly, there may be a "casualty loss" issue to come to the rescue. When all is said and done, it appears there is a distinct probability your client is simply facing. . .a $100k theft."