• The question is whether the plan contains a provision permitting them to distribute any match following separation directly to the employee, outside of the plan.  Withholding at the 20% rate suggests that they made a half-hearted attempt to distribute the match through the plan.
• Otherwise, the plan should have been able to reactivate the 401(k) account or establish a new one to deposit the match.  This would be one of their duties as trustee and recordkeeper of the plan.  Since the match was distributed in 2017 the issue will not arise until next year, when tax returns for 2017 are being prepared.  But discussions should be held now with the plan regarding how the transaction will be reported for 2017.  The plan should not issue a W-2, and they should issue a 1099-R.  If they issue a W-2 instead of a 1099-R in early 2018, the client should request a corrected W-2 showing zero, and issuance of a 1099-R.  If they refuse, this will be a valid situation to use form 4852.  With this form, you can make the needed corrections yourself, and form 4852 will serve as a substitute for forms W-2 and 1099-R.  But you must request the corrections first from the company and the 401(k) plan.  If they fail to make the corrections you must then notify the IRS.  After doing that, you are permitted to prepare and submit a suitable form 4852 with your tax.  You should use one form 4852 for the W-2 and a separate form 4852 for the 1099-R.  This would all occur in the early months of 2018.  The withholding will be available at that time for the tax return for 2017. 
• The withholding of $1000 can be made up from client’s own funds as part of the 60 day rollover.  If now beyond 60 days, the new self-certification process (Rev. Proc. 2016-47) should be applicable due to plan error or delay in providing information.
• See the following:  

          https://www.irs.gov/uac/about-form-4852 

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