I hope this forum works well. It's nice to have a place to get other ideas when you need them. I need some help in how to report a SEP withdrawn in 2006 reported on a 1099-R with a code of 1 (premature withdrawal - no known exception). I picked up the client this year. The SEP was contributed in 2002. In 2006, the same preparer amended the 2002 return because of Rev Proc 2001-17, allowing them to use the foreign earned income exclusion after being evacuated from Pakistan before meeting the exclusion criteria. The income in question was reported on a Schedule C on the original return with a SEP deduction based on that income. On the amended return, the income was changed to wages and taxpayers were instructed to withdraw the SEP contribution. The original contribution amount was $12,500 (taxpayer provided documentation for this), but the SEP deduction was liimited to $10,701. They believe their previous preparer handled everything correctly and they should only have to pay tax on the small amount of income earned on the $12,500 with no penalties. I can't seem to find much on this. Ideas would be greatly appreciated.
