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Subject:  Re: K-1 Section 751 statement Date:  2/26/2009  9:14 AM
Author:  TMFPMarti Number:  104735 of 123001

With all due respect, I don't see that on the back of the 1099-R. What I see is a reference to the instructions for Form 5329.

Now that I'm home I've been able to track down the problem. It's the wording of the instructions for the 5329.

I checked both my 1099-R and the official IRS one. Both say that code 2 means "Early distribution, exception applies (under 59 1/2)." As you noted, there's no mention of the 5329, but there's a general instruction for Box 7 to see the 5329 (and 8606) instructions for further information.

The 5329 instructions have conflicting bullets in the "Who Must File?" section. One is the bullet you mentioned, which says that a 5329 is required if you got an early distribution and box 7 didn't have code 1. The next two bullets are in direct contradiction, saying that if a penalty exception applies and the code is not 1 you don't need to file the 5329. I can't imagine how you got confused.

Here's the "trust me, this is how it works" explanation. A code 1 on box 7 means you took a premature distribution subject to the 10% penalty. Code 2 means you took a premature di