Guest Article

(From the August 2, 2010 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

IRS Provides Instructive Primer on Serving Notices of Levy on Retirement Plans

A recently issued Chief Counsel Advice memorandum explains the proper way for the IRS to serve notice of levy on a retirement plan. It explains that there are two kinds of levy that can be served on retirement or pension accounts, and the form of notice depends on whether or not the participant is currently "entitled to income." The memorandum provides useful information for plan administrators who are responsible for responding to such notices.

In CCA 201022015 the IRS served notice of levy on the administrator of a defined benefit pension plan in which the delinquent taxpayer was a participant. The IRS used Form 668-A, Notice of Levy to serve notice, but the plan administrator would not honor the levy because it appeared to lack the required IRS signature. The IRS requested advice from the national office, which responded with the CCA.

The IRS distinguished between participants who are entitled to income from the retirement plan, and those who are not yet entitled to income but are entitled to make a lump sum withdrawal. Where an individual is currently entitled to income, the IRS may levy on that income. As explained in the memorandum, this includes where the individual has a fixed and determinable right to future income from the plan. This levy remains in effect until it is released (i.e., it extends past the expiration of the statutory period for collection). Notice of this levy is given on Form 668-W, Notice of Levy on Wages, Salary and Other Income, which may be signed by certain IRS revenue officers as well as other IRS employees.

Alternatively, where the individual is not currently entitled to income from the retirement plan, but is entitled to take a lump-sum distribution, the IRS can levy on funds in the plan. Notice of this levy is given on Form 668-A, and requires signature by certain director-level personnel at IRS.

The CCA cautions that, where Form 668-W is used, some of the income may be exempt from levy.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Bart Massey 202.220.2104, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Deborah Walker 202.879.4955. Copyright 2010, Deloitte.