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This is so unbelievable that I have to wonder if there isn't SOMETHING more to it than what you have stated - and I mean no disrespect to you. It is just hard to even imagine that any company sponsoring an ESOP, which almost always requires an attorney and TPA involvement, would do something so blatant.

I'd call any kind of adjustment like that "other income" (which is where earnings go, so effectively, earnings). One might ask what difference it makes to amend returns starting in 2007 (or earlier) knowing that the first year is a fudge no matter when you do it, and just showing the proceeds in the year received. Depends on what the TPA is comfortable with (and I guess there is plenty of money to pay fees ).

Seems to me there are two separate issues. The failure to do 1099 reporting is, as MoJo mentioned, irrelevant to the question of subsequent loan repayment. The deemed distribution occurred, and if a 1099 wasn't produced properly, then that is an error that needs to be corrected. Failure to report such a distribution is subject to all the appropriate penalties. Then the subsequent repayment to the plan is basis, and should be treated as such upon later distribution.

maybe yes, maybe no, but you probably want something more specific than that so.... what was beat into me years ago.... how does the document define 'limitation year' Under definitions, one document has the following: "Limitation Year" means the year specified in the Adoption Agreement for purposes of determining Annual Additions limits pursuant to Article 5. All qualified plans maintained by the Employer must use the same Limitation Year. If the Limitation Year is amended to a different 12-consecutive month period, the new Limitation Year must begin on a date within the Limitation Year in which the amendment is made. The adoption agreement for said document is as follows: 5. Limitation Year means: a. [ ] Plan Year b. [ ] calendar year c. [ ] tax year of the Plan Sponsor d. [ ] other: NOTE: If A.5d is selected, the limitation year must be a consecutive 12-month period. This includes a fiscal year with an annual period varying from 52 to 53 weeks, so long as the fiscal year satisfies the requirements of Code section 441(f). ............................ normally a limitation year is 12 months, so even in the case of a new plan, the limitation year is still 12 months, so no prorate. now, if , in the checklist above, 'plan year' is selected, then since the plan year is short, you pro rate things. ............. 1.415(j)-1 Limitation year- unless the terms of the plan provide otherwise, the limitation year..is the calendar year [which of course is 12 months!] (d) Change of limitation year--(1) In general. Once established, the limitation year may be changed only by amending the plan. Any change in the limitation year must be a change to a 12-month period commencing with any day within the current limitation year. For purposes of this section, the limitations of section 415 are to be applied in the normal manner to the new limitation year. (2) Application to short limitation period. Where there is a change of limitation year, the limitations of section 415 are to be separately applied to a limitation period which begins with the first day of the current limitation year and which ends on the day before the first day of the first limitation year for which the change is effective. In the case of a defined contribution plan, the dollar limitation with respect to this limitation period is determined by multiplying the applicable dollar limitation for the calendar year in which the limitation period ends by a fraction, the numerator of which is the number of months (including any fractional parts of a month) in the limitation period, and the denominator of which is 12. In the case of a defined benefit plan, no adjustment is made to the section 415(b) limitations to reflect a short limitation period. (3) Deemed change of limitation year. If a defined contribution plan is terminated effective as of a date other than the last day of the plan’s limitation year, the plan is treated for purposes of this section as if the plan was amended to change its limitation year. Thus, the rules of this paragraph (d) apply to the terminating plan’s final limitation year.