Rollover to Exempt Organizations

[ERISAAPPLE]

I have a similar issue to the one Carol had, except we have not yet made the distribution to the tax exempt entity.  This is a lump sum distribution to a tax-exempt entity.  Do we withhold at 10% under 3405 and not allow the entity to make an election (because under the statute only individuals can opt out of withholding)?    I could read 3405(e)(1)(B)(ii) very broadly to mean no withholding is required if it is reasonable to believe the distribution will not be subject to tax, but I don't think that is the better interpretation of that provision.  It just seems odd to withhold on a distribution to a tax-exempt entity.  Also, do I report the distribution on a 1099-R?  I feel comfortable saying a 1099-R is required, so the entity can report the income on its Form 990.