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MSP #10: LEVIES ON ASSETS IN RETIREMENT ACCOUNTS

Current IRS Guidance Regarding Levies on Retirement Accounts Does Not Adequately Protect Taxpayer Rights and Conflicts with Retirement Security Public Policy

TAS Recommendations and IRS Responses

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1.

TAS RECOMMENDATION #10-1

In collaboration with TAS, revise the IRM on retirement account levies to define flagrant conduct, which should include elements of willful and voluntary conduct that appears to be a gross violation from a reasonable person standard, include examples of extenuating circumstances that can mitigate flagrant conduct, require a full pre-levy financial analysis, and educate taxpayers about actions available to avoid a levy on a retirement account.

IRS RESPONSE TO RECOMMENDATION: Since June 2015, prior to issuance of the NTA’s 2015 Report to Congress, the IRS has been holding discussions with the Taxpayer Advocate Service (TAS) to revise the flagrant conduct examples in the IRM on retirement accounts.  As part of these discussions, we asked TAS for any data to support a need to revise the definition of flagrancy, or any data that would show revenue officers are abusing discretion based on the current definition.  TAS referenced a single case; however, in that lone example, the Deputy Commissioner determined the levy decision, including the revenue officer’s flagrancy assessment, was appropriate.  Based on those discussions, on January 19, 2016, we submitted the negotiated proposals in an IRM update which clarified the flagrancy examples and included reference to pre-levy considerations.  The IRS is continually educating taxpayers through our various letters and contacts on their rights which include information to request review by an independent Office of Appeals, an explanation of the entire process from examination (audit) through collection, and explaining when TAS may be able to assist the taxpayer.

Update: Agreement reached with NTA on changes to IRM 5.11.6.2 and SERP IRM Procedural Updates (IPUs) sent to Publishing on June 10, 2016.

CORRECTIVE ACTION: Clearance for the IRM 5.11.6.2, Funds in Pension or Retirement Plans has been completed. We are in the process of holding a final executive level meeting to address TAS comments before publication.

TAS RESPONSE: The IRS is persistent in its refusal to define flagrant conduct.  As such the decision as to whether a taxpayer is flagrant is still dependent upon the judgment of the individual revenue officer using IRM examples.  The National Taxpayer Advocate is pleased that the IRS has addressed some of her concerns by providing additional examples of flagrant conduct in IRM 5.11.6.2.  As stated above, TAS continue to negotiate with IRS on providing a clear definition of flagrant conduct prior to clearing IRM 5.11.6.2.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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2.

TAS RECOMMENDATION #10-2

The IRS should identify calculators that it can use, such as those provided by the SSA or TSP, to determine the impact of a levy on a retirement account on the taxpayer’s future well-being. Alternatively, the IRS could create its own calculator.

IRS RESPONSE TO RECOMMENDATION: The IRS believes the current guidance on financial analysis ensures taxpayers are treated in a uniform manner.  Collection employees are required to determine whether the taxpayer depends on the money in the retirement account (or will in the near future) for necessary living expenses.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The National Taxpayer Advocate remains concerned the guidance in IRM 5.11.6.2 on whether the taxpayer depends on the money in the retirement account is inadequate to ensure consistent treatment amongst taxpayers.  The instructions point to IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs), to determine the taxpayer’s life expectancy but are silent on what type of calculators to use to determine when funds will be depleted.  In addition to the variety of methods that could be used by different revenue officers the IRM is silent on factoring any growth in retirement funds or projecting future increases in necessary living expenses.  TAS has developed a theoretical model of a “retirement needs” calculator that will enable Collection and TAS employees to estimate the impact of the levy on the taxpayer’s ability to provide for his or her expenses in retirement.  We plan to introduce the calculator to the IRS in conjunction with the upcoming negotiations concerning the Area Director approval memorandum; the National Taxpayer Advocate will also brief the Commissioner of Internal Revenue on the calculator.  Moreover, TAS plans to utilize the calculator to support its advocacy efforts on behalf of taxpayers with retirement account levy cases in TAS.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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3.

TAS RECOMMENDATION #10-3

Create a unique Designated Payment Code for retirement levy proceeds or a unique identifier within the Integrated Collection System to identify, track, and review retirement levy cases.

IRS RESPONSE TO RECOMMENDATION: Creation of a Designated Payment Code (DPC) or unique identifier is unnecessary for Collection to evaluate the effectiveness of retirement levies, as they are evaluated on a case-by-case basis and require executive-level approval. Additionally, there is no systemic method for capturing DPC data and a manual retirement levy DPC would have an inherent human error component.  The IRS believes the current approval process ensures taxpayers are treated in a uniform manner and internal guidance is being followed.

CORRECTIVE ACTION: N/A

TAS RESPONSE: As part of this MSP, TAS requested the IRS to provide the taxpayer identifying numbers of taxpayers whose retirement accounts were levied in calendar years (CYs) 2014 and 2015.  The IRS responded with a list of thousands of potentially levied taxpayers but advised it had no way to positively identify those taxpayers whose retirement accounts had been levied.  As such, IRS has no way to perform a valid quality review on groups of cases with retirement asset levies.  Additionally, stakeholders such as TAS and the Treasury Inspector General for Tax Administration (TIGTA) have no way of reviewing IRS performance in this area.  Given the fact that retirement levies have potentially life-altering consequences for taxpayers, it is imperative that IRS create some method to identify these cases.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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4.

TAS RECOMMENDATION #10-4

Postpone the ACS retirement levy pilot program until all of the National Taxpayer Advocate’s concerns have been addressed; and if they are not able to be addressed, do not implement the pilot.

IRS RESPONSE TO RECOMMENDATION: The purpose of the pilot is to determine whether levies should be issued on Thrift Savings Plan (TSP) accounts, not all retirement accounts. The pilot procedures were developed and shared with the staff of the NTA. Forty-eight separate issues were identified as discussion points in the procedures. Over the course of several meetings between representatives of the NTA and the Collection Inventory, Delivery and Selection group, agreement was reached on all 48 items and the pilot began on January 19, 2016. We are monitoring the pilot cases through a Data Collection Instrument (DCI) and, once the pilot is complete, we will analyze the DCI for conclusions and recommendations. We briefed TAS on March 14, 2016 regarding the status of the pilot and will continue to provide information and updates as the pilot progresses and after conclusion of the pilot.

CORRECTIVE ACTION: N/A

TAS RESPONSE: TAS has been advised by IRS that the ACS TSP levy pilot will be discontinued upon its completion.  TAS plans to review the pilot report upon its completion to ensure that the IRS does not plan to transition the pilot into a permanent program.  In addition TAS will review cases from the pilot and compare the IRS data collection instrument with the one created by TAS.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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