1099-R Distribution Code 3 (Disability) is showing owing taxes when it was rolled over into a mutual fund. How do I correct this?

I have a 1099-R from an employee stock ownership plan. Box 1, 2 and 6 are filled out with box 7 having a distribution code of 3. I was told that I would not have to pay taxes on this because it was rolled over into a mutual fund.
    Did you roll it over to a IRA?  If not, then the disabilty does not waive the ordinary income tax, just the 10% penalty tax for early distribution.

    If you meet the IRS definition of disability under 72(m)(7) then you can claim a waiver of the 10% early distribution penalty if under 59 1/2.  The retirement distribution is still taxable as ordinary income.
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