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Defending your Retirement Account

Nov 21, 2014

If an IRS Revenue Officer is threatening to levy your retirement account, know that the IRS has an internal four-step process in their Internal Revenue Manual (IRM) to use for analysis. The Service must follow this process before it can take your account.

  1. Determine if you can even get to the money.  If you can’t get to it, neither can the IRS.  Being able to borrow is not enough; you have to be able to withdraw it for the IRS to have any right to levy it.
  2. The IRM’s guidance states that the IRS can take retirement accounts only in flagrant situations of nonpayment. In other words, the IRS prefers to take retirement accounts from those with intentionally bad acts, not those who simply made a life mistake. 
  3. The IRS must then consider if there are any better alternatives to collect than taking your retirement.  The IRS prefers installment agreements or non-retirement assets as a source of payment.  The IRS won’t necessarily tell you this, but it is in the Internal Revenue Manual: As a part of your defense you can simply offer another, less severe solution.
  4. Are the funds in the retirement account needed to pay your bills in the near future?  If so, the IRS would create a financial hardship by taking your retirement funds, preventing you from paying your bills upon retirement.  Show the IRS that you will not be able to pay your expenses if the retirement is lost and this will cause them slow down.

The IRM is full of defenses and solutions to IRS problems.  When you owe the IRS, they are on offense, and you are on defense.  The rules of defense are in the IRM playbook – the IRS officer isn’t going to tell you those rules, but they are readily available.  They do share their playbook.  But we have to read it, know it, and apply it to get the results.  Do not overlook the value of the Internal Revenue Manual when formulating your defense and settlement approach.

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Daniel Gibson

Daniel Gibson provides accounting, tax planning and consulting services to real estate and services industries and is a member of the AICPA and New Jersey Society of Certified Public Accountants.

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