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Proposed regs released Friday morning 11/24 -- happy Thanksgiving, all!

If the plan was never qualified (which it would seem it wasn't) and you did not take a deduction, then legally you should be able to just get your money back without IRS involvement. It's a mistake. You're fixing it. Usually, however, the plan custodians don't understand that, at least not at the level you are dealing with. They don't want to get involved in any tax underreporting/skullduggery so want you to get approval from IRS, which I don't think really fits in this situation since there never was a qualified plan.

If it's eligible for rollover, it's subject to the 20% mandatory withholding.