CCA 1248021: Chief Counsel says a levy reaches vested pension benefits

Plain-English summary

Chief Counsel advised that a federal tax levy can reach a taxpayer's vested pension-plan rights, including present and future payment rights and the right to choose a distribution form. In the scenario presented, the taxpayer was entitled to monthly annuity payments, so the levy reached those distributions without waiting for the taxpayer to elect to receive them. The memorandum identified limited defenses to a levy and noted potential personal liability for a plan administrator who fails to honor it.

Ruling snapshot

• Question: Could a federal levy reach a taxpayer's vested pension-plan rights and monthly annuity payments?
• Outcome: Advice
• Key authorities: IRC §§ 6331 and 6332; United States v. National Bank of Commerce, 472 U.S. 713 (1985); United States v. Donahue Industries, 905 F.2d 1325 (9th Cir. 1990)

Full text (IRS public release)

ID: CCA_2012091912125725 Number: 201248021
Release Date: 11/30/2012
Office: --------------
UILC: 6331.12-00

From: -----------------
Sent: Wednesday, September 19, 2012 12:13:09 PM
To: ---------------
Cc: --------------------------------------------------------------------
Subject: RE: Question re Levy on Pension Benefits

As you know, a levy attaches to all of the taxpayer's property and rights to property (except exempt
property) pursuant to section 6331(a). With respect to pension plans, the Federal Tax Lien (FTL)
attaches to a participant's interest in a plan if the participant has a vested benefit, which would be when
the participant has acquired a nonforfeitable right to part or all of the accrued benefits. The FTL attaches
to all present rights the taxpayer has under the plan, including the participant's present right to payment,
the present right to payment in the future, and the present right to elect a form of distribution even if
presently unexercised.

In your case, because the taxpayer has the right to receive monthly annuity payments from the plan, the
government's levy reaches such distributions and neither the taxpayer nor the plan administrator may
thwart collection by alleging a lack of authorization. The RO need not wait for an election by the taxpayer
to receive payments. The only two defenses to levy are (1) that the person is not in possession of the
taxpayer's property or rights to property or (2) the property or rights to property are subject to prior judicial
attachment. See U.S. v. Nat'l Bank of Commerce, 472 U.S. 713, 721-22 (1985). Neither defense seems
applicable here. ------------------------------------------------------------------------------The plan administrator faces
personal liability for failing to honor a levy pursuant to section 6332(d), possibly including the 50% penalty
under section 6332(d)(2). See U.S. v. Donahue Industries, 905 F.2d 1325 (9th Cir. 1990).

Feel free to call me directly if you have any questions or further want to discuss.

Regards,

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