A client left their employer and rolled over their retirement plan balance to an IRA in 2007. Client was advised that they have an excess contribution to the 401(k) for 2007 as the plan failed discrimination testing. However, now that the balance of their 401(k) is in their IRA, can they simply elect any one holding purchased with the rollover proceeds to represent the excess contribution balance (i.e., they have more than enough cash to cover this including gains attributed to interest - but they could certainly also select a holding which has lost value since being purchased) or must the excess contribution be attributed pro-rata to all holdings?

When you remove the excess amount, it should be accompanied by any NIA to the excess. The NIA can be earnings or losses, and is based on the performance of the entire IRA balance during the computation period.

Any asset/s in the IRA can be removed as the distribution, to satisfy the return-of-excess distribution. If noncash is distributed, consider that the value of the asset may change between the time the request is submitted and the time it is actually processed, resulting in the reported distribution amount being more or less than the amount that should be distributed.