The IRS is permitted to seize the funds in your retirement account, including a 401(k) plan, IRA, and many other types of accounts. Retirement account levies are generally only sought after other enforced collection actions have been unfruitful.
Retirement Plan Levies
Some people are surprised to find that the IRS can seize the money in their retirement accounts. State laws often prevent creditors from seizing retirement account funds, but the IRS has special powers that other creditors lack.
Fortunately, there are some limitations on the retirement account levy powers given to the IRS. First, the IRS must stand in the taxpayer’s shoes. If you are still working and don’t have the current right to withdraw funds from your retirement account, the IRS can’t either. However, the IRS could use other collection methods—such as a wage garnishment—to entice you to use your retirement account funds to pay your back taxes.
The IRS should offer your other collection alternatives. If you don’t use them, the IRS then has to look for flagrant conduct.
One common example of flagrant conduct is contributing to your retirement account while your delinquent taxes went unpaid. The IRS considers paying them a higher priority than funding your retirement nest egg.
Tax fraud, a history of tax violations, failing to cooperate with the IRS are also examples of flagrant behavior. In these cases, the IRS can move forward with a retirement account levy.
Avoiding Retirement Account Levies
First, you should carefully understand the requirements that must be met for a retirement account levy to take place and how they apply to your situation. Contact a tax attorney if you need assistance.
If you are approaching retirement, you should be particularly concerned about a retirement account levy. If you have a disability that allows you to access your retirement account before the normal retirement age, this could also give the IRS the right to access your retirement funds with a levy.
If you do meet the requirements for a retirement account levy, you can generally avoid the levy by negotiating a payment plan, Offer in Compromise, or some other type of tax resolution. Discuss your case with a tax attorney to determine your best course of action.
The Gartzman Law Firm can help you with retirement account levies and other IRS tax problems. Use our contact form to request a consultation with an Atlanta tax resolution attorney.