IRS Levy on IRA to Satisfy Federal Tax Debts

• Author: Seymour Goldberg
• Profession: Senior partner in the law firm of Goldberg & Goldberg, P.C., in Woodbury, New York
• Pages: 12-12

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IRS LEVY ON IRA

TOSATISFY FEDERAL

TAX DEBTS

IRAs are generally protected against cred itors of an IRA owner in a

state court proceeding and in a bankruptc y proceeding.

The protection is provided for under the state law debtor/creditor

statutes and under the bankruptcy code.

However, IRAs are not protected against the federal government if

a federal tax debt is not paid.

In Swanton v. Commissioner, T.C. Memo 2010-140, t he IRS seized

$289,017 from Mr. Swanton’s IRA to satisfy trust fund penalties. The

taxpayers reported this amount on their Form 1040 for t he calendar

year 2004. This case before the Tax Court involved collection issues.

The Tax Court noted that the payment of a federal tax by means of

a levy on a deferred income asset const itutes an involuntary assignment

of income. This levy results in a taxable event to the ta xpayer under the

doctrine of constructive receipt.

Author’s Note

When the IRS lev ies an IRA to satisf y a tax debt, it is viewed as if the

taxpayer received the f unds from the IR A and then paid the tax debt to

the IRS.

A levy on an IR A of a taxpayer who has not attained age 59½ is not

subject to 10 percent additional tax. See IRC §72(t)(2)(A)(v ii).

The IRS collection div ision generally does not levy an IR A account

if other assets are available to satisf y the federal tax liability.

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