A client takes a distribution but then returns the funds to the plan (including the tax withholding) within 60-days to avoid it being a taxable distribution. I am not quite sure how the 1099-R should report the distribution. To compound things, the money wasn't returned until January 2010.

Has anyone researched this?

The plan reports it normally as with any other distribution on the 1099-R. If the client subsequently rolls this over, whether back into the same plan or not, the client must account for this on their 1040.

I'm pretty sure you would treat it as two separate events - a taxable distribution, code 1 or 7, and then...well, plans don't report rollovers in, so I guess that participant will just have to be prepared to some splainin'. Serves 'em right for making you do the extra work involved with a distribution!

See "How to Report" on page 28 of Publication 575. Reporting the 60-day rollover is the individual's responsibility, not the plan's as the other posters noted.

Is this really a rollover? Does the plan permit the participant to "return" the funds?

Just asking.