Help for item 7c.

Box 7. Distribution Code(s)
Enter an "X" in the IRA/SEP/SIMPLE checkbox if the distribution is from a traditional IRA, SEP IRA, or SIMPLE IRA. It is not necessary to check the box for a distribution from a Roth IRA or for an IRA recharacterization.

Enter the appropriate code(s) in box 7. Use the Guide to Distribution Codes on pages R-10 and R-11 to determine the appropriate code(s) to enter in box 7 for any amounts reported on Form 1099-R. Read the codes carefully and enter them accurately because the IRS uses the codes to help determine whether the recipient has properly reported the distribution. If the codes you enter are incorrect, the IRS may improperly propose changes to the recipient's taxes.

When applicable, enter a numeric and an alpha code. For example, when using Code P for a traditional IRA distribution under section 408(d)(4), you must also enter Code 1, if it applies. For a normal distribution from a qualified plan that qualifies for the 10-year tax option, enter Codes 7 and A. For a direct rollover to an IRA or a qualified plan for the surviving spouse of a deceased participant, enter Codes 4 and G.

Caution! Only three numeric combinations are permitted on one Form 1099-R: Codes 8 and 1, 8 and 2, or 8 and 4. If two or more other numeric codes are applicable, you must file more than one Form 1099-R. For example, if part of a distribution is premature (Code 1) and part is not (Code 7), file one Form 1099-R for the part to which Code 1 applies and another Form 1099-R for the part to which Code 7 applies. In addition, for the distribution of excess deferrals, excess contributions, or excess aggregate contributions, parts of the distribution may be taxable in 2 or 3 different years. File separate Forms 1099-R using Code 8, D, or P to indicate the year the amount is taxable.

Even if the employee/taxpayer is age 591/2 or over, use Code 1 if a series of substantially equal periodic payments was modified within 5 years of the date of the first payment (within the meaning of section 72(q)(3) or (t)(4)). For example, Mr. B began receiving payments that qualified for the exception for part of a series of substantially equal periodic payments under section 72(t)(2)(A)(iv) when he was 57. When he was 61, Mr. B substantially modified the payments. Because the payments were modified within 5 years, use Code 1 in the year the payments were modified, even though Mr. B is over 591/2.

Caution! For further guidance on what makes a series of substantially equal periodic payments, see Notice 89-25, 1989-1 C.B. 662, as modified by Rev. Rul. 2002-62, 2002-42 I.R.B. 710. Notice 2004-15, available on page 526 of Internal Revenue Bulletin 2004-9 at www.irs.gov/pub/irs-irbs/ irb04-09, allows taxpayers to use one of three methods in Notice 89-25, as modified by Rev. Rul. 2002-62, to determine whether a distribution from a nonqualified annuity is part of a series of substantially equal periodic payments under section 72(q)(2)(D).

If part of an eligible rollover distribution is paid in a direct rollover and part is not, you must file a separate Form 1099-R for each part showing the appropriate code on each form. If part of a distribution is an eligible rollover distribution and part is not (for example, a minimum distribution required by section 401(a)(9)) and the part that is an eligible rollover distribution is directly rolled over, you must file a separate Form 1099-R to report each part.

Section 457(b) plan distributions. Generally, a distribution from a governmental section 457(b) plan is not subject to the 10% additional tax under section 72(t). However, an early distribution from a governmental section 457(b) plan of an amount that is attributable to a rollover from another type of plan or IRA is subject to the additional tax as if the distribution were from a plan described in section 401(a). See section 72(t)(9). If the distribution consists solely of amounts that are not attributable to such a rollover, enter Code 2 in box 7. If the distribution consists solely of amounts attributable to such a rollover, then enter the appropriate code in box 7 as if the distribution were from a plan described in section 401(a). If the distribution is made up of amounts from both sources, you must file separate Forms 1099-R for each part of the distribution unless Code 2 would be entered on each form.

1099 Recipient Instructions

Box 7. The following codes identify the distribution you received. 1-Early distribution, no known exception (in most cases, under age 591/2 ). See the Form 1040/1040A instructions and Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts. For a rollover of the entire distribution, do not file Form 5329. See the Form 1040/1040A instructions for how to report the rollover. 2-Early distribution, exception applies (under age 591/2 )*. 3-Disability*. 4-Death*. 5-Prohibited transaction. 6-Section 1035 exchange (a tax-free exchange of life insurance, annuity, or endowment contracts). 7-Normal distribution. 8-Excess contributions plus earnings/excess deferrals (and/or earnings) taxable in 2005. 9-Cost of current life insurance protection (premiums paid by a trustee or custodian for current insurance protection, taxable to you currently). A-May be eligible for 10-year tax option. See Form 4972. D-Excess contributions plus earnings/excess deferrals taxable in 2003. E-Excess annual additions under section 415 and certain excess amounts under section 403(b) plans. Report on Form 1040/1040A on the line for taxable pension or annuity income*. F-Charitable gift annuity. G-Direct rollover to a qualified plan, a tax-sheltered annuity, a governmental 457(b) plan, or an IRA. May also include a transfer from a conduit IRA to a qualified plan*. J-Early distribution from a Roth IRA, no known exception (in most cases, under age 591/2). Report on Forms 1040 and 8606 and see Form 5329. L-Loans treated as distributions. N-Recharacterized IRA contribution made for 2005 and recharacterized in 2005. Report on 2005 Form 1040/1040A and Form 8606, if applicable. P-Excess contributions plus earnings/excess deferrals taxable in 2004. Q-Qualified distribution from a Roth IRA. You are age 591/2 or over and meet the 5-year holding period for a Roth IRA. See the Form 1040/1040A instructions*. R-Recharacterized IRA contribution made for 2004 and recharacterized in 2005. Report on 2004 Form 1040/1040A and Form 8606, if applicable. S-Early distribution from a SIMPLE IRA in first 2 years, no known exception (under age 591/2 ). May be subject to an additional 25% tax. See Form 5329. T-Roth IRA distribution, exception applies. You are age 591/2 or over, disabled, or are the beneficiary of a participant who died. (You may not meet the 5-year holding period.) See the Form 1040/1040A instructions.

If the IRA/SEP/SIMPLE box is checked, you have received a traditional IRA, SEP, or SIMPLE distribution.

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