The IRS generally only levies retirement account funds when there are no other alternatives. If you don’t have other valuable assets and have failed to cooperate with the IRS, it’s possible that the money in your retirement account will be seized.
However, there are many ways to avoid a retirement account levy, and there are limitations on the ability of the IRS to seize your retirement account funds.
Access to Retirement Account Funds
The IRS can only “step into your shoes” and get rights that you also possess. Many retirement accounts limit access to the funds until retirement, so you don’t currently have an unrestricted right to access the money.
However, the IRS can seize your right to receive retirement income in the future, and can even seize property after the statute of limitations on collection has expired if the levy occurs before it expires. For example, the IRS levies your future right to receive retirement income, and then the collections statute expires. Once you have the right to receive the retirement income, the levy remains enforceable.
The IRS will consider whether the taxpayer’s conduct was flagrant before levying a retirement account. This generally involves tax fraud, funding the retirement account while your delinquent tax debt remains unpaid, or failing to pay current taxes.
The IRS may also decide not to levy retirement funds if it would cause an economic hardship. If you are relying on the retirement money just to get by, the IRS may agree not to levy those funds.
Keep in mind that the IRS may also levy a portion of your Social Security benefits, seize your tax refund checks, and take other actions to collect back taxes.
Avoid a Retirement Account Levy
Instead of hoping the IRS doesn’t levy your retirement income, you can avoid the levy by taking action towards resolving your tax debt. Many taxpayers can totally avoid the risk of a levy using one of the following strategies:
- Negotiate an installment agreement and make monthly payments on your tax debt that fit your budget.
- Submit an Offer in Compromise to settle your debt for less than you owe.
- Request currently not collectible status to avoid the threat of imminent collection actions.
- Use innocent spouse relief or penalty abatement to reduce the amount you owe.
Protect your retirement money by contacting a tax resolution attorney to work out a solution to your tax debt problems.
Get help settling your IRS tax debt and avoid IRS levies by calling Ayar Law at 248-262-3400 to request your consultation with a tax attorney.