When Will the IRS Levy Retirement Accounts?
The IRS can levy the assets in a qualified retirement account, such as a 401(k) or an IRA. However, the IRS will only levy retirement funds as a last resort. They would rather levy other assets, such as a bank account.
Before the IRS will levy a retirement account, they must abide by several pre-levy procedures.
First, the IRS will typically only levy retirement account funds if there has been flagrant misconduct, such as tax evasion, failure to cooperate with the IRS, or something similar.
Second, the IRS can only levy a right that the taxpayer currently has. If the taxpayer doesn’t have a present right to make withdrawals (if they haven’t reached retirement age), the IRS can only levy their future rights. In these cases, the IRS doesn’t actually get the money until you have a right to get it, which could be many years away.
Retirement assets will only be levied if there’s nothing else for the IRS to seize. Even when this is the case, you still may be able to avoid the levy.
Stop a Retirement Account Levy
There are several ways to avoid an IRS retirement account levy:
- If you have other assets, the IRS should consider levying those first.
- If you agree to work out an IRS payment plan, you can avoid the levy before it happens or have it removed.
- You can submit an Offer in Compromise to settle your tax debt
- You can show that you will depend on the retirement account funds in the near future to pay necessary living expenses and that the levy will cause economic hardship.
In short, you have to aggravate the IRS, have no other assets available to levy, and not suffer from an economic hardship before the IRS will levy your retirement account. This is why retirement account levies aren’t common.
With that said, the threat of a retirement account levy is still real. If you have income that can be garnished, the IRS can also ask you to withdraw your retirement funds to pay your tax debt in order to avoid the wage levy.
Contact an Attorney
You have options when it comes to avoiding or appealing a retirement account levy and negotiating with the IRS. Contact a tax resolution attorney to get professional assistance.
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