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401k distributions and federal tax claim against deceased participant


Guest jlh
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401k plan participant died in 2002, having designated as beneficiary of his account a family member (not spouse). At time of death participant had significant unrelated federal personal income tax liabilities. Is account balance now distributable to surviving named beneficiary exempt from levy/seizure by IRS for participant's tax liabilities? Code/reg and other citations wd be useful. Tx.

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Guest b2kates

one of the few exceptions to the anti alienation rule for ERISA plans is a tax lien.

Be very careful, the IRS does have the ability to follow the funds to the recipient and hold them liable.

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The non alienation provisions of ERISA do not apply to the enforcement of a federal tax levy under IRC 6331 or collection on a judgment resulting from a unpaid tax assessment. Reg. 1.401(a)-13(B)(2). There are numerous ct cases where IRS has seized plan assets to recover back taxes.

mjb

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I agree that care should be used but I think that the main quesiton is when did the levy/lien attach. I was previously faced with this situation where the levy was not received until after the participant died. Therefore, at the time of the levy no amount was owed to the participant and the only amounts owed by operation of the plan document was to the beneficiary. The beneficiary had no IRS liabilities.

The IRS took the position that it had a valid lien on the account and the plan and the beneficiary arged that no amounts under the plan were owed to the participant at the time of the levy.

Ultimately the plan filed an interpleader in federal court, paid the distribuiton to the court, and let the participant and the IRS "duke it out". I think that IRS ultmately conceded that since it did not levy until after the participant's death it had no right to the account balance.

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