51National Taxpayer Advocate 2024 Purple Book
IMPROVE ASSESSMENT AND COLLECTION PROCEDURES
Legislative Recommendation #23
Protect Retirement Funds From IRS Levies, Including So-Called
“Voluntary” Levies, in the Absence of “Flagrant Conduct” by
a Taxpayer
SUMMARY
• Problem: Congress has provided signicant tax incentives to encourage Americans to save for retirement.
ose policies reect recognition that almost all workers eventually retire and require retirement savings
to pay their basic living expenses and that retirees who do not have savings often end up on costly
public assistance programs. ose policies are undermined when the protections for retirement savings
from levy are a matter of IRS policy, rather than codied in statute, and the IRS encourages or allows
taxpayers with tax liabilities to agree to “voluntary” levies on their retirement accounts.
• Solution: Prohibit the IRS from levying on retirement accounts unless a taxpayer has engaged in
“agrant conduct.”
PRESENT LAW
e IRS has wide discretion to exercise its levy authority. IRC § 6331(a) provides that the IRS generally may
“levy upon all property and rights to property” of the taxpayer, which includes retirement savings. Some
property is exempt from levy pursuant to IRC § 6334.
As a policy matter, the IRS has decided not to levy on the assets in a taxpayer’s retirement account unless it
determines the taxpayer has engaged in “agrant conduct.”
1
However, the term “agrant conduct” is not
dened for purposes of this analysis in the IRC or Treasury regulations. Although the Internal Revenue
Manual (IRM) provides examples of agrant conduct,
2
it does not provide taxpayer protections. Taxpayers
generally may not rely on IRM violations as a basis for challenging IRS actions in court, and the IRS may
modify or rescind IRM provisions at any time without congressional or public input.
REASONS FOR CHANGE
Congress has provided signicant tax incentives to encourage taxpayers to save for retirement. ere are
strong public policy reasons to encourage retirement savings and to shield retirement savings from IRS levies.
Almost all workers eventually retire, and they require retirement savings to pay for basic living expenses. In
addition, retirees who do not have sucient savings are more likely to experience economic hardship and
qualify for public assistance, which taxpayers pay to provide.
e IRS has taken certain steps to protect retirement savings by requiring a specialized analysis prior to levy,
including a determination of whether the taxpayer engaged in “agrant conduct.” However, certain changes
in IRS procedures have eroded these protections. In 2017, the IRS modied the IRM to adopt procedures
.
See
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IMPROVE ASSESSMENT AND COLLECTION PROCEDURES
52 Improve Assessment and Collection Procedures
that allow taxpayers to request “voluntary” levies on retirement accounts.
3
If a taxpayer requests a “voluntary”
levy, the IRS bypasses the determination of “agrant conduct.”
4
As a result, taxpayers who have not engaged in “agrant conduct” in their tax matters and who therefore
would have been shielded from levies on their retirement accounts in the past may agree to “voluntary” levies
out of fear or anxiety and thus may nd themselves in economic hardship during retirement.
Because retirement accounts are critical to retirees’ nancial well-being, we recommend that Congress codify
the levy protections, rather than leaving their scope to the IRS’s discretion. Under IRC § 6334, the IRS is
prohibited from levying on certain sources of payment, such as unemployment and child support. ese
exceptions reect policy determinations. For example, Congress has determined that the IRS should not
levy on child support payments because doing so would likely harm the children who rely on those benets
for support. To better protect retirement savings, the National Taxpayer Advocate believes that retirement
savings should be added to the list of exempt property, absent “agrant conduct,” and that the term “agrant
conduct” should be dened in the statute.
5
RECOMMENDATIONS
• Amend IRC § 6334(a) to include qualied retirement savings as a category of property exempt from
levy unless it is determined that the taxpayer has engaged in “agrant conduct” and the levy would not
create an economic hardship.
6
• Amend IRC § 6334 to dene “agrant conduct” as an action with the intent to evade or defeat any tax
imposed by Title 26 or the collection or payment of any such tax.
7
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e.g.
