Question: If a tax preparer sees Code 1 on a Form 1 0 9 9 - R for an early distribution but the taxpayer claims an

If a tax preparer sees Code 1 on a Form 1099-R for an early distribution but the taxpayer claims an exception, how should this be handled?
Change the code in BlockWorks to reflect the exception.
Leave the code as is and complete Form 5329 for the exception.
Report the distribution as nontaxable.
Remove the penalty automatically without documentation.

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