One tool that the Internal Revenue Service uses to collect back taxes is the tax levy. A levy allows the IRS to take property to satisfy an outstanding tax debt.
A proposed rule could expand the ability of the IRS to collect back taxes from federal employees. The IRS estimate is that approximately 300,000 federal employees owe a total of $3.3 billion in unpaid taxes. This goes to show that anyone can struggle to pay an unexpected tax bill.
The rule would allow the Federal Retirement Thrift Investment Board to freeze an investor’s Thrift Savings Plan when it receives a tax levy notice. The FRTIB would also be able to take funds from the retirement account to pay the back taxes. What other property can the IRS levy?
When a tax bill goes unpaid, the IRS can seize and sell your property. This could include:
- Your home
- A car or truck that you own
- Any recreational vehicles, such as a boat, camper or ATV
In addition, the agency can take liquid assets in savings or checking accounts and through wage garnishment. The agency is generally also able to go after retirement accounts, rental income, dividends and even the cash value of a life insurance policy. As you can see, a levy can easily affect your long-term finances.
An installment agreement or a settlement through an Offer in Compromise may be ways to avoid a levy. If a levy poses an economic hardship the agency may also put a hold on collecting the back taxes, but the debt will not go away.
Federal employees cannot afford to ignore IRS notices as the reach of the levy may soon extend to previously protected retirement accounts.
Source: FedSmith.com, “Do You Owe Back Taxes and Have a TSP Account? Be Forewarned,” Ralph Smith, July 3, 2014.