Yes, the IRS can seize your IRA or other retirement account.
Yes, the IRS is exempt from state laws protecting your retirement account and can take what it wants at any time.
The IRS may seize your Keogh, 401(k), IRA or SEP by sending a letter to the administrator demanding all the money up to the amount of taxes, interest and penalties they claim you owe.
If you wish to get some of the money back, you must prove that the taking of your IRA is going to create a significant and undue economic hardship on you and your family.
The same goes for ERISA plans, but the IRS may take only the amount that is vested. If you have a right to the money, then the IRS can get to it.
Now, here’s the real bad news!!!!! Yes, more bad news.
When the IRS sizes your IRA, you must pay tax on that money as if it were distributed to you.
You don’t need to pay an early withdrawal penalty on the amount the government takes.
You do have options.
If you are concerned with the IRS and what might happen in the years to come, you can take control of your retirement account away from your administration.
Please Note:
The IRS can also seize your account if your foreign bank has a branch in the United States. Putting your IRA in HSBC or Citibank makes little sense if you have a tax issue or are concerned with government interference.
The governing IRS IRM on the subject.
5.11.6.3 (07-08-2019)
Funds in Pension or Retirement Plans
These instructions cover assets accumulated in a pension or retirement plan, as well as Individual Retirement Arrangements (IRAs). They do not deal with levying retirement income. See section IRM 5.11.6.2 above. Also see Delegation Order 5-3 (Rev-1) at IRM 1.2.44.4(23)c and IRM 5.17.3.10.19Pension and Retirement Benefits.
There are many employer and self-sponsored retirement vehicles that are not exempt from levy. These plans include, for example:
Qualified Pension, Profit Sharing, and Stock Bonus Plans under ERISA
IRAs
Retirement Plans for the Self-Employed (such as SEP-IRAs and Keogh Plans)
Because these retirement vehicles provide for the taxpayer’s future welfare, levy on the assets in a retirement account (as contrasted with income from the account) only after following the procedures set forth below.
If the taxpayer provides a signed written request to the Service to levy the assets in the retirement account, consider the taxpayer’s request to levy the account as part of the ability to pay determination.
Prior to levying pursuant to the taxpayer’s request, follow step 1 as described in paragraph (4) (consider alternatives to levy on retirement assets) and step 3 as described in paragraph (7) (determine whether the taxpayer needs the retirement assets for necessary living expenses). Document the case history and Form 15000, Request for Approval of Levy on Funds in Pension, Retirement Plans or TSP Account that the taxpayer requested the IRS to issue the levy; do not make the flagrant conduct determination in step 2 as described in paragraphs (5) and (6) below.
Follow guidance in IRM 5.15.1.28, Retirement or Profit Sharing Plans.
If the taxpayer requests the levy and you decide that the Service should levy after following steps 1 and 3 in paragraphs (4) and (7), respectively, before issuing the levy, verify that the taxpayer has received CDP rights. If the taxpayer has not received CDP rights, then follow the procedures in IRM 5.11.1.3.3,
Satisfying the Notice Requirements.
An imminent collection statute expiration date (CSED), alone, does not justify levying on retirement assets. Levying on assets in retirement accounts requires application of the procedures set forth below.
The first step in deciding whether to levy on a retirement account is to determine what property, retirement assets and non-retirement assets, is available to collect the liability. If there is property other than retirement assets that can be used to collect the liability, or if a payment agreement can be reached, consider these alternatives before issuing a levy on retirement accounts.
Also consider the expense of pursuing other assets as well as the amount to be collected. Levy determinations are made on a case-by-case basis and Revenue Officers must exercise good judgment in making the determination to levy.
See IRM 5.11.1.3.1, Pre-Levy Considerations. Document the case history with the determinations made in steps (4) through (7) below. Additionally, levying on assets in retirement accounts requires application of the following procedures.
The second step in deciding whether to levy on a retirement account is to determine whether the taxpayer’s conduct has been flagrant.
If the taxpayer has not engaged in flagrant conduct, do not levy on retirement accounts. Deciding whether the taxpayer has engaged in flagrant conduct must be done on a case-by-case basis. Keep in mind, however, extenuating circumstances may exist that mitigate the taxpayer’s flagrant conduct. See IRM 5.1.10.3.2(9)(b), Effective Initial Contact.
