@The Real Halloween 🎃Let's start with Code 1 = Normal Distribution. This could mean they sent the client a check to reimburse for expenses client said they paid out. In reality, the money could have paid the bill from the ice cream company that helps feed his diabetic disease. Code 1 does little to resolve the taxability of the distribution. There is no entry for the codes from box 3. There is only an input for box 1. 2 entries lower is Qualified unreimbursed medical .... That is where an entry equal to or greater than the first entry will save the day. If the client spent the money on insulin instead to Tutti-Frutti, then an entry here would exclude any income or penalty from the distribution for both Federal and California.  If this is not happening you must have done something amiss.