We borrowed money from my wife's 403B ...20K and the agent told us that it had to be paid back in 5 years. He also stated that the monies would be with drawn from her monthly pay check automatically. She still works for the same employer but the money was never taken out. We have paid back more than half on the orginal (within the 5 years) but since the money was not taken out, we recieved a 1099 for all 20K . Now we are getting hit with a huge penalty, just when we were getting ready to pay off the last half. Again before the five years are up. Is there anyway to get the IRS to reverse this to a loan instead of an early distribution. The company is continuing to charge us interest and maintainance fees like it is a loan.