In 2005 I was downsized from my employer and received 26 week severance package. During this time we lived of this money while I looked for a new job. During this time I left my 401K plan money with my former employee. In January of 2006 I accepted a lump some distribution from my 401K plan. When I did this I had the investment company withhold the 10% early withdrawl penality and an additional 15% in federal income tax from this disbursement. In December of 2006 the IRS notified me that they wanted me to provide proof that I paid the 10% penality. I contacted the investment company that had withheld the in question taxes and in question penality. I was told that they could not supply proof of the 10% penality but just provide a form that showed the total amount of withholding which they did. I forwarded this to the IRS and they responded back to me in January 2007 that I still owed the 10% penality. How can I prove to the IRS that I have already paid this amount?:confused:

You must address the distribution in your annual tax return.

Did you get a Form 1099-R for the distribution amount. If so, which tax year, 2005 or 2006?

If you want my professional tax help, contact me at [email protected].