Voluntary levy of IRA

[DaveO]

Taxpayer has three years of unpaid taxes and just received a notice that the IRS is defaulting their installment agreement for non-payment. They have funds in an IRA they wish to use to pay the balance. Is there a form or procedure that can be used to expedite this process? It will take months for the IRS to get through their normal process and the taxpayer just wants it over and done with. I was hoping that there was some method faster than just writing a letter to the service center or sitting on hold for three hours.

[Roland Slugg]

If your client is age 59½ or older, there is no need to wait for a levy. He can withdraw the needed funds from his IRA and use them to pay the IRS. The funds withdrawn will be taxable, of course. If he is under 59½, however, the 10% §72(t) penalty will apply unless the distribution is "made on account of a levy under section 6331 on the qualified retirement plan." (Code §72(t)(2)(A)(vii))

An IRA is not exempt from an IRS levy, but in order to avoid the §72(t) 10% penalty (if under age 59½), the T/P must wait until the IRS issues a levy that includes his IRA. Since your client wants to expedite this very thing, I would suggest that he contact the IRS person or department he was dealing with regarding his installment agreement and request that the levy process be started promptly and that it specifically name his IRA as a levied asset. This will take a little time, as the IRS has certain procedures and time frames it must follow. Once the levy is issued, and your client verifies that it names his IRA, he can withdraw the needed funds penalty-free.

If he does this, be sure to claim the exception to the 72(t) penalty, on F-5329, for the year it takes place.

Finally, I would not dream of ever calling the IRS's general 800 phone number about something like this ... or for any other reason for that matter.

[DaveO]

Thanks Roland. That is the very problem they are not 59 1/2. I've seen the 6331 levies before and had searched for a way to speed it up. Guess I'll write to the service center and hope someone reads the letter. I agree, the help lines are anything but.

[ATSMAN]

Wait for the levy! My client rushed the process without consulting me because her new husband was really upset and it cost her the 10% penalty. IRS would not waive it even though she provided full documentation that every cent went to pay delinquent taxes.