Mandatory Withholding Error

[EBECDC]

A participant received a lump sum distribution and the employer deducted 20% mandatory withholding. Over a year later, the administrator discovered the distribution should not have occurred. I believe the participant should repay the distribution amount, and the employer should file for a refund of the erroneously withheld amount using Form 941c and 843 (per the IRS's letter on recovery of erroneous withholding (https://www.pbgc.gov/prac/terminations/missing-participants/irs-letter-on-recovery-of-erroneous-withholding). Does this correction seem appropriate? Thanks in advance.

[Bird]

If it happened that long ago, and reporting was done properly on the distribution as it happened, despite the fact that it was incorrectly distributed, then the WH has already been applied to 2016 taxes for the participant and applying to the IRS for a refund is not going to work.  The participant would have to repay both the cash received and the WH.  Of course you're talking about an amended 1099-R now, and ultimately the participant should be getting a refund of taxes and penalties paid on the distribution (not necessarily 20%).

[EBECDC]

This is very helpful. Thank you!