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Loan offsets are eligible rollover distributions. Loan offsets occurring in 2018 or later have the extended time period to roll over an amount equal to the loan balance. (The regulation I quoted above has not been updated to reflect the 2018 change.) A deemed loan is not an eligible rollover distribution. Deemed vs Offset is a technical distinction. In your case, the determination is easy. The text at the bottom of your original post says the outstanding loan balance is immediately due and payable upon termination of employment. It also says that failure to pay any installment when due constitutes a default. That is the situation the text I put in bold above says is a loan offset. You said your last day was 1/2/18. If your loan payments were current through 12/31/17, the loan offset occurred in 2018.

I know this doesn't exactly speak to the technical issues, but I've become disheartened over the years seeing these plans installed and blown up in the first couple of years. I know many of the skilled consultants anticipate these types of issues during the plan design phase and implement plans that avoid these issues. Unfortunately, many do not. Just venting a little frustration.

I think a lot of plan administrators don't understand the difference between deemed and offset, as it is somewhat subtle. The issue is that the IRS wants you to be taxable, following a grace period, if you miss a payment and don't cure, but they don't want plans to violate the general prohibition on in-service distribution. So the regulations create useful fiction of a "deemed distribution," which means that you get a 1099-R for the amount that you defaulted on, even if you have not had a distributable event, such as a termination of employment. Believe it or not, the IRS regs say that that "deemed" distributed loan lives on, ghost-like, in the plan, continuing to earn ghost interest and, potentially, blocking a future loan from the plan, after the date of the default, until you have a distributable event, at which time the outstanding amount of the loan (but not the ghost interest, thankfully) is "offset" against your account, and thus finally gone. Note that you actually can repay a deemed loan before it is distributed, and thus resurrect that portion of your account, in which case you would have tax-paid "basis" in your account for the amount you repaid, but I digress. Anyway, if the loan default occurs before the distributable event, e.g. separation from service, occurs, and certainly if it occurs in a taxable year before the distributable event occurs, things are relatively simple: You have a deemed distribution in one year, and a 1099-R reflecting that, with its own code, L, in Box 12, and then in a later year you get your distribution, which does not include the previously deemed amount, and you don't pay tax on it again. It's also pretty simple if the event of default is, as it often is, the distributable event itself, e.g. separation from service. Assume that the plan documents and administration are consistent that if you separate from service and don't repay the loan within some fairly short grace period, it defaults. In that case, you would actually have a taxable distribution of your loan (surprise! you already got the money when you took the nontaxable loan out, so the distribution now is "air," but at least you no longer have the obligation to keep paying your account back). Because in this case the loan was not previously "deemed," so that you did not pay tax on it, it's not unfair that the offset is treated as a taxable distribution on your Form 1099-R, just unpleasant. And note that in this case, because IRS treats it as an "actual" distribution, it doesn't get a code L on the 1099-R. In your case, although a review of the plan and loan policy documents, and promissory note, would be required to say this with total assurance, it seems pretty clear that what caused your loan to default was probably your separation from service, because the plan probably follows the permissible rule that it defaults the loan when you separate and it can no longer withhold repayments from payroll. (Note that not all plans do that; some permit terminated participants to keep paying by check until the loan is paid off.) I mean, you never really missed a payment, right? So why else could they be defaulting your loan. The new law states that a loan offset occurring after 2018 qualifies for the more liberal rollover timing (i.e., you would have until your filing deadline in 2019 for your 2018 1040 to roll cash up to the amount of the loan into an IRA) if the loan default is on account of "the failure to meet the repayment terms of the loan from such plan because of the severance from employment of the participant." Sounds to me like you will meet that requirement, assuming that the plan gave you at least 30 days following employment to pay the loan off without calling it a default and your termination date was after December 1, so that the 30 days would put you in 2018. However, if your employer treats the loan offset (seemingly, incorrectly) as a "deemed distribution" and codes it as such on the 1099-R, you could have problems with the IRS Service Center where you file your return, assuming you do roll it over. You might also have problems with the IRA custodian that you deposit the loan offset rollover with, although I doubt it. There's helpful discussion of the reporting issues and difference between the two types of distributions in the 2018 IRS Form 1099-R instructions. Just Google the .pdf of those and then search in the .pdf for "plan loan offset" and also "Code L." These are discussed in several places.

First, questions like this should always start out by asking: WHY does he want to do this? We'll probably find out he thinks he's getting something by doing it this way the he won't get so the whole issue will be moot. In addition (and without doing any research) the back of my brain tells me the contribution of property is considered a sale by the individual (so he would incur capital gain treatment currently) and then a contribution of that value to the plan. And if it's not publicly traded, there are all the issues of valuation. What does he think he is getting by doing this? Why not just sell the stock and contribute the funds? Is he thinking he's putting future growth of the stock into the plan? Well, then if it's such a good investment, the plan can buy it back with the cash contributed. Is it wise? Of course not, and we all know that's the right answer. Don't do it!

We do not file false 5500s. The closest we would come to that is if we don't have all the data and we don't think it is material we will file knowing there is an amendment. By the way something like not having the stock appraisal for an ESOP would never be seen as immaterial. That can be a problem with ESOPs. I see no reason to be associated with a false 5500. Although I will add I am a CPA so I have the added risk of losing my license over something like this but even if I wasn't I wouldn't do it. The firm I work for management would never agree to a false 5500 filing. They will deal with late forms and those costs over false filing or lost client.