Excerpt: The IRS has announced a change to the instructions for the 2004 Form 1099-R. Retirement plans file this form to report distributions. The revisions affect distribution codes 1 and 2 for Box 7 of the form. A plan uses these codes to report distributions to participants under age 59-1/2. In general, code 1 indicates that the distribution could be subject to a 10% early distribution penalty under Code 72(t), while code 2 indicates the distribution is exempt from the penalty.