Can the IRS Issue a tax levy on retirement account assets to collect unpaid taxes?
The short answer is generally, yes.
- Retirement account assets that qualify under the Employee Retirement Income Security Act (ERISA) such as pension plans, 401(k) and others can be subject to an IRS tax levy.
- Non-qualifed retirement account assets such as an Individual Retirement Account (IRA) are also subject to IRS tax levies.
This may contrast with the laws regarding private creditors and civil lawsuits. Ultimately, the IRS is the government and a superior creditor. Taxpayers cannot avoid paying their taxes and use retirement account laws to shield their assets. While the IRS may ultimately be able to reach retirement account assets, it is generally not their first choice. They would prefer to issue a tax levy on other income or assets if more easily available.
Retirement accounts are a sacred cow of sorts and it is good public policy to avoid harming a taxpayer's ability to support themselves in retirement. Otherwise, if the IRS levies retirement account assets and this in turn leaves the taxpayer without enough income in their retirement years to pay necessary living expenses, the government may have to support the taxpayer through government safety net programs. This would defeat the purpose of collecting the unpaid tax in the first place.
The goods news is that certain taxpayers with unpaid taxes may be able to fend off an IRS tax levy and protect their retirement account assets. If you believe your retirement account was unfairly or incorrectly levied by the IRS, State or Local tax agency, you may still have the right to Appeal the levy and have your property returned.
If you owe back taxes and want to protect your retirement accounts from a tax levy or want to Appeal an executed levy, feel free to contact me about your situation.