If the loan is in good standing - the participant did not default on the loan and the loan meets other statutory requirements - then the loan is treated as an offset and is rollover eligible.
If the loan is in default, then the amount is not rollover eligible. Reasons for a loan being in default include the participant not making loan repayments on at least a quarterly basis.
A loan offset is reported as a regular distribution with Code 1 or Code 7 - depending on the participant's age - in
Box 7 of Form 1099-R.
A deemed distribution is reported with Code L in B
ox 7 of Form 1099-R.
For related reading, see Qualified Plan Loans: Guidelines To Operations and Borrowing From Your Plan.
This question was answered by Denise Appleby