IRS Tax Levy on an IRA?
by Ken Golliher, BOL Guru
Question: Are the funds in a personal IRA subject to an IRS tax levy?
Answer: IRAs are not exempt from IRS levies nor does the IRS seek "consent" from the taxpayer. However, the question persists, so I am going to "over respond" in order to bury it as deeply as I can.
Check out the IRS Manual at: http://www.irs.ustreas.gov/irm/index.html
and review 18.104.22.168.1, specifically the section, "Property Exempt From Levy." Please notice it does not mention IRAs and ends with the statement:
5. No other property is exempt from levy. No state or local law can exempt property from levy to collect federal tax.
Then, go to the section, 22.214.171.124, Notice of Levy in Special Cases:
2.There are many employer and self-sponsored retirement vehicles that are not exempt from levy. However, because these provide for the taxpayer's future welfare, levy on the body of funds in a retirement account (as contrasted with income from the account), only in flagrant cases. These plans include, for example:
- Qualified Pension, Profit Sharing, and Stock Bonus Plans
- Retirement Plans for the Self-Employed (such as SEP-IRAs and Keogh Plans)
4.The notice of levy form says it does not attach money in pension or retirement plans. However, in an exception, these funds can be levied. To do this, sign the Notice of Levy in the block to the left of, "Total Amount Due."
Finally, take a look at IRS form 668-A(C), Notice of Levy where it says: "This levy won't attach funds in IRAs, self-employed individual's retirement plans, or any other retirement plans in your possession or control, unless it is signed in the block to the right." Obviously, if the form is signed in the appropriate block by an IRS representative, the levy attaches to those accounts.
In addition to the stated concerns over the taxpayer's retirement, levying on an IRA creates taxable distributions which simply make the taxpayer's problems worse. Just so the public will not think the IRS is graceless, Congress established a provision for a waiver of the 10% premature withdrawal penalty for funds withdrawn from an IRA by levy.
State law often exempts IRAs and retirement funds in general from attachment by state courts. However, as noted above, they have no say in what the IRS does.
The "exemption" of IRAs from levy is an exceptionally hard piece of "lore" to kill. May it rest in peace.
First published on BankersOnline.com 9/03/07