Oops the plan sponsor forgot to 1099 the hardship withdrawal

[Guest SJPrince]

Ok our client forgot to 1099 the recipient of a hardship withdrawal for the year 2000, as such the recipient didn't include that amount on his income tax return... no income or excise tax was paid on the money.

NOW what do we do? Do they issue a 1099 now and have the recipient amend his return? And in general what are the consequences for this mistake?

Thanks.

[david rigby]

I'm no expert, but it sounds like a failure of the plan administrator, which does not necessarily mean the plan is in violation of anything.

Hard to argue with the approach of doing an 1099 now, send to the IRS, possibly with letter of explanation, and having the employee refile taxes. It probably makes sense that the additional tax is the employee's, but the employer could pay for any fee necessary to refile, and any possible penalty.