Ian Posted August 24, 2020 Share Posted August 24, 2020 Forgive me if this has been answered . . . Can the IRS enforce a tax levy on 403(b) plan annuity contract payments? Does it matter if the 403(b) plan is an ERISA plan? Finally, are these answers any different if the levy is imposed on the 403(B- contracts before they are distributed? Any help is appreciated. Link to comment Share on other sites More sharing options...
Peter Gulia Posted August 25, 2020 Share Posted August 25, 2020 If the Internal Revenue Service’s levy is legally and procedurally proper, that the property the levy reaches is a right under an annuity contract or custodial account held under an IRC § 403(b) plan does not impair the levy. For some background information, read these two parts of the Internal Revenue Manual: IRM 5.11.5 Levy on Wages, Salary, and Other Income https://www.irs.gov/irm/part5/irm_05-011-005 IRM 5.11.6.2 Retirement Income https://www.irs.gov/irm/part5/irm_05-011-006 When income other than “salary or wages” is levied, “the levy reaches a payment the taxpayer has a fixed and determinable right to.” That’s so even if the payment will be in the future. If a proper levy is made when the taxpayer has no right to an immediate distribution, the levy can remain in effect (unless released) while the IRS waits for the taxpayer’s entitlement. Luke Bailey 1 Peter Gulia PC Fiduciary Guidance Counsel Philadelphia, Pennsylvania 215-732-1552 Peter@FiduciaryGuidanceCounsel.com Link to comment Share on other sites More sharing options...
Ian Posted August 25, 2020 Author Share Posted August 25, 2020 Thanks so much. Am I correct in assuming that, even if the 403(b) were an ERISA plan, the ability of the IRS to impose a tax levy under section 6331 of tax code would trump the required ERISA anti-assignment provision. (I know that Reg. 1.401(a)-13(b)(2) specifically says that for qualified plans.) Again, thanks for the help. Link to comment Share on other sites More sharing options...
Peter Gulia Posted August 25, 2020 Share Posted August 25, 2020 ERISA preempts many State laws, but preempts no Federal law. ERISA § 514(a), 29 U.S.C. § 1144(a). If there otherwise might have been some doubt, ERISA provides: “Nothing in this title shall be construed to alter, amend, modify, invalidate, impair, or supersede any law of the United States (except as provided in sections 111 and 507(b)) or any rule or regulation issued under any such law.” ERISA § 514(d), 29 U.S.C. § 1144(d). {My quotation is to the statute, not the compilation in the United States Code. That compilation is rebuttable evidence of the law, but the statute controls.} Internal Revenue Code of 1986 (26 U.S.C.) § 6334(c) provides: “Notwithstanding any other law of the United States (including section 207 of the Social Security Act), no property or rights to property shall be exempt from levy other than the property specifically made exempt by subsection (a).” Following those two quoted statute sections, courts have interpreted ERISA § 206(d) as not precluding an IRS levy, lien, or garnishment on a participant’s, beneficiary’s, or alternate payee’s rights under an ERISA-governed retirement plan. For example, United States v. Sawaf, 74 F.3d 119, 123-24 (6th Cir. Jan. 26, 1996); Shanbaum v. United States, 32 F.3d 180, 182-183, 18 Employee Benefits Cas. (BL) 1929, 74 A.F.T.R.2d (RIA) 94-6292, 94-2 U.S. Tax Cases (CCH) ¶ 50,512 (5th Cir. Sept. 16, 1994). Peter Gulia PC Fiduciary Guidance Counsel Philadelphia, Pennsylvania 215-732-1552 Peter@FiduciaryGuidanceCounsel.com Link to comment Share on other sites More sharing options...
Ian Posted August 26, 2020 Author Share Posted August 26, 2020 This is exactly what I was looking for! Can't thank you enough. Link to comment Share on other sites More sharing options...
Peter Gulia Posted August 26, 2020 Share Posted August 26, 2020 Thank you for your kind words. Lois and David Baker provide a super-useful service. Advertising supports it. If BenefitsLink helps you: Consider advertising for your business. https://benefitslink.com/advertise/ When you’re selecting a product or service to use in your business, get information from those that advertise on BenefitsLink. Peter Gulia PC Fiduciary Guidance Counsel Philadelphia, Pennsylvania 215-732-1552 Peter@FiduciaryGuidanceCounsel.com Link to comment Share on other sites More sharing options...
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