If you owe a significant amount of money to the IRS, you may find yourself in close contact with an IRS Revenue Officer. The role of this individual is to obtain payment for the tax debt you owe. For many taxpayers, this may be their first experience dealing with the IRS Revenue Officer, and as a result, they may not be familiar with all of their legal rights. If the IRS Revenue Officer plans to go after your retirement assets to recover the money you owe, it is crucial to understand the limitations on the IRS’s ability to collect this type of asset.
IRS Collection Efforts: Can They Seize Retirement Accounts?
What limitations are in place with regard to retirement assets and IRS debt collection? Here is a sampling of the limits imposed on IRS collection actions:
- If you do not have the ability to access the money in your 401(k), the IRS cannot take it. For example, you typically cannot access your 401(k) until after you leave your place of employment. While you remain with that employer, the IRS cannot reach the asset. The ability to borrow against the 401(k) is not enough for the IRS to be able to reach the asset. Instead, you must be able to withdraw it.
- The IRS should only take retirement accounts when there is a situation of flagrant nonpayment. Examples of flagrant nonpayment include tax evasion, tax fraud, failure to cooperate with an IRS investigation, placing assets out of the IRS’s reach, earning illegal income, and continuing to owe the IRS money even after agreeing not to owe additional money in the future.
- The IRS must first consider whether there are any better alternatives to collect your unpaid tax debt before taking retirement assets. Generally, the IRS would prefer to agree to an installment agreement or take non-retirement assets in order collect the tax debt you owe. If the IRS attempts to take a retirement account, taxpayers can offer a less punitive solution and the IRS should accept it rather than taking the retirement asset.
- If you need the funds in the retirement account to pay your bills, the IRS should not take this asset since it would create a financial hardship. Taking your retirement assets could make it impossible for you to pay your expenses when you retire. If you can prove this to the IRS, they should not take this specific asset.
Dealing with the IRS over an unpaid tax debt is no easy task. We encourage you to learn more about the process today by reviewing our free guide, The Ultimate Survival Guide for IRS Problems.