Tax Relief Blog
Can the IRS levy an IRA for Back Taxes? Yes the IRS can levy your IRA for unpaid back taxes.
Mr. Wayne Smith did not pay his back taxes after filing 3 years of tax returns. He owed the IRS around $36,000 of back taxes. He went to tax court, and the court ruled for the IRS and its $36,000 levy on Mr. Smith. Mr. Smith had a personal hardship, he was spending more than $800,000 plus his IRA income on his gambling addiction and not paying his back taxes.
Ordinary creditors are prevented from levying pension and IRA accounts due to anti-alienation provisions, the IRS does not conform to these anti-alienation provisions as many taxpayers think, the IRS can and will levy IRA and other retirement accounts to collect on any unpaid back taxes. In other words, the IRS is pretty much free to levy IRA accounts at its own will specially in cases of flagrant taxpayers abuse. Learn more by reading Internal Revenue Manual Section 5.11.6.2(5).
The positive side in an IRS IRA levy, is that the IRS would forgive the 10% early withdrawal penalty for the amount they levy from the IRA account to cover the unpaid back taxes.
So, I hope this clarify a misconception, that the IRS cannot touch IRA or other retirement accounts as perceived by many taxpayers. If you have any unpaid back taxes, you should seek professional help from a licensed tax representative to protect your rights and resolve your tax problem.
Call Mike Habib, EA today at 877-788-2937 to get a free case analysis.
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