Finally the plan administrator corrected the 1099-R and had no taxable income amount when corrected. It has only taken me almost 3 months to obtain a corrected 1099-R!!

That resolves the first issue. Now the IRS wants to penalize the taxpayer the 10% penalty on the early withdrawal from the 403(b) account. Do hardships such as medical and educational expenses (schooling and loan repayments) qualify as an exemption from the 10% penalty similar to a 401(k) withdrawal?

Does Form 5329 handle the avoidance of a penalty for hardship exemptions for 403(b) plan withdrawals?

Since I did not file the original return for this taxpayer they are not sure how they handled the exemption from the early 10% penalty as it is not shown on the return at all.

Any feedback would be extremely helpful as I have been keeping the IRS on hold since September awaiting the corrected 1099-R and now this penalty comes alive.........

Thanks in advance for a response.