Follow up on TBOR and CDP

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In an earlier post, I wrote about an order in the case of Dang v. Commissioner remanding a Collection Due Process (CDP) case back to Appeals. Taxpayer opposed the remand requested by the IRS arguing that the Tax Court should just grant the taxpayer’s request for relief without the need of a remand. In a recent order, it looks like the Appeals employee took little time after the remand to reach the conclusion proposed by the taxpayer although the matter is not quite finally settled.

At issue in this case was the taxpayer’s request that the IRS levy on his retirement account in order to satisfy the outstanding tax debt. The revenue officer refused to do so and the Appeals employee said that the CDP hearing did not provide such a remedy. The taxpayer requested that the IRS levy on the retirement account because he was not yet 59 and 1/2. If he pulled the money out of the retirement account as requested by the RO and the SO, he would have to pay tax on the money withdrawn and a 10% excise tax under IRC 72(t)(1). If the IRS levies on the retirement account, the 10% excise tax does not apply because of IRC 72(t)(2)(A)(vii).

Among other arguments, the taxpayer argued that requiring him to pull the money out violated the Taxpayer Bill of Rights since it would cause him to pay more than the correct amount of tax. Requiring him to pull out the money just seemed downright stupid and unfair which no doubt motivated the Chief Counsel attorney to request the remand at the outset of the case. The second time around, Appeals seems to get the concept. The case suggests that some training might be needed and maybe a change in the IRM to make it easier for ROs to levy on a retirement account when requested to do so by the taxpayer. Without such a request, ROs must seek high level approval to levy on a retirement account. Removing the layers of approval when the taxpayer seeks the levy would make it easier for ROs to acquiesce to such a request.

The approval levels provide a barrier that explains why the employees would not readily acquiesce in what seems like a reasonable request by the taxpayer and why their behavior was grounded in logic twisted by the approval levels. The approvals levels necessary to levy on retirement accounts were created to protect taxpayers. So, Mr. Dang’s problem in getting the IRS to levy finds its roots in a procedure designed by the IRS to help but when coupled with the elimination of the penalty offered by IRC 72(t)(2)(A)(vii) ends up hurting certain taxpayers. It’s good to see that the IRS was able to work though the problem in the remand.

Because the case appears on a path to agreement, we will not have the opportunity to see what the Tax Court would do with the TBOR argument made by the taxpayer and whether the use of TBOR in this context might provide a path to remedy.


  1. I had a similar issue in the early 90’s where I requested that the Service seize and sell common stock held by my client. I’m not going to disclose the reason that we did so. In the aforementioned case, IRS properly seized the stock and sold it at public auction. All parties were satisfied; some more than others.

  2. I thought tax-favored retirement accounts were to encourage saving for retirement, not to pay taxes. If Congress wants to make paying taxes an exception to 72(t) it knows how to do it.

    • Congress seemed to know how to do it in 72(t)(2)(vii). The issue in Dang concerns the willingness of the IRS to issue the levy to the retirement account to allow the taxpayer to benefit from that exception to the 10% excise tax. It is an unusual use of the exception for early withdrawal and maybe it is used so infrequently that the IRS does not have a comfort level in taking this action. As a general policy matter the IRS exercises a great deal of caution in levying on retirement accounts.

      • Joseph Barry Schimmel says

        I had the same thought as Rod. While I have had many clients in the same Dang situation, both before and after IRC 72(t)(2)(A)(vii), there does seem to be room for abuse (I will just pay my taxes from my retirement account). I think a reasonable explanation is that, in probably every case, the taxpayer has already been assessed a penalty of more than 10%. Rather than an IRM change, it might be possible to have a revenue procedure that allows, after the filing of a NFTL or NOIL (if not earlier), the taxpayer to elect a levy on the retirement account.
        On the other hand, I can imagine a situation where a taxpayer’s spouse (or former spouse) would be harmed by the levy, and where ERISA or state law restrictions (or marital agreements) would otherwise prevent the taxpayer from making the withdrawal to pay taxes.

  3. We have asked Revenue Officers to do this in the past, and have asked Appeals to order Revenue Officers to issue such levies, and those requests have been universally denied. I agree — a change to the IRM is appropriate. If the Service insists on addressing equity in assets first, including assets in retirement accounts, then there should be procedures in place to permit taxpayers to access such funds with minimal penalty and difficulty.

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