I've encountered a situation in which a participant received a plan loan several years ago but the plan has not enforced the repayment requirement. Accordingly, the plan has not issued a Form 1099R, either, but now would like to "correct" the outstanding defaulted loan.

How should the plan report the deemed distribution? If the participant defaulted on the loan in 1993 but the plan did not issue a 1099R for that year (or any subsequent year) to report the deemed distribution, may the plan issue a 1099R for 1993, or is that year closed (even though the IRS never received notification of the deemed distribution)? Do other options exist? Could the plan issue a 1099R for 2000 (the year of correction)? OR, since the participant has terminated employment, could/should the plan simply deduct the outstanding loan amount from the accrued benefit and report an actual distribution for 2000?

Thanks for your insight.

I think the plan could issue the 1099 for 1999 or 2000, whichever is the year of distribution.

Thanks for your input, dsilver. The availability of this option would be helpful. Is there any IRS guidance you (or anyone else) would recommend with respect to such an approach?

None that I can think of but I didn't look at the new 1099R instructions yet.