Skip to main content
Find a Lawyer

Tax Reporting of Plan Loan Defaults

This article was edited and reviewed by FindLaw Attorney Writers

| Last reviewed
Legally Reviewed

This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw’s team of legal writers and attorneys and in accordance with our editorial standards.

Fact-Checked

The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area.

The IRS Form 1099-R for 1997 includes a new distribution code for reporting certain taxable amounts relating to plan loans. This new code comes into play in case of a "deemed distribution" that results when a participant defaults on a plan loan or the loan fails to meet the Internal Revenue Code section 72(p) requirements for a nontaxable plan loan. When a deemed distribution occurs, usually as a result of an employee's failure to make timely loan payments, the principal balance and accrued-but-unpaid interest become taxable and must be reported on a 1099-R, separately from any other reportable amounts.

The new code, which should be reported in Box 7, is the capital letter "L." This code should only be used for a deemed distribution, which is a taxable event that occurs before the plan participant may receive a distribution of his or her entire plan benefit. The new code should not be used for an "offset distribution" that results when a loan becomes a taxable distribution upon termination of employment.

Was this helpful?

Copied to clipboard