Katrina 1099-R Distribution Code

[Gruegen]

I realize that the IRS has not issued guidance yet regarding the Form 1099-R Box 7 Distribution Code for "disaster-relief distributions" due to Hurricane Katrina (which are exempt from the 10% 72(t) early distribution penalty pursuant to KETRA), but I wanted to get people's opinion whether you think the IRS will:

1) Recommend that Code "1" be used for disaster-relief distributions and leave it up to the participant to exempt it from the 10% early distribution penalty when they do their 1040/5329.

2) Have Code "2" be used, and modify the 1099-R instructions to add this to the list of 72(t) exceptions.

3) Create a new Code for use for disaster-relief distributions only.

Thanks.

[Guest TAG]

Gruegen,

The buzz I have heard is that no new 1099-R codes will be created - code 1 will be used. It will be up to the taxpayer to correctly report using the 5329.

Bottom line is that the onus will be on the taxpayer to prove as the payer has no way of knowing if the payment meets the exceptions.

We'll see.

TAG