Defaulting on loans taken from a retirement plan causes tax woes
for a taxpayer who borrowed funds from her workplace 403(b) account
but ceased making the required repayments after two years. Though the plan sponsor
sent her a Form 1099-R reporting the unpaid loan balance as a taxable distribution,
she omitted the income from her return. She not only owes tax on the deemed payout
but also the 10% fine for early distributions, because she hadn’t yet reached age 59½,
and the 20% penalty for large understatements (Martinez, TC Memo. 2016-182