How to correct deposit of after tax dollars as deferrals?

[Guest SSCARO]

One of my clients inadvertently failed to deduct 401k deferrals for the first payroll in year 2000 for one of their owners. When it was discovered, the owner wrote a personal check to the company and they included the amount in the next deposit as a deferral for him. Now, of course, his 1099 does not balance to the total deferrals credited to his account for the year (This is how the error was discovered). It is too late for the company to adjust the owner's 1099 to report the contribution as a deferral.

Any thoughts on the best way to correct this? I'm thinking in terms of a check from the plan to the participant in the amount of the deposit plus earnings, but I know the service doesn't like to see that kind of payment from the trust. Any suggestions?

Thanks.