- 14 -
without incurring a penalty for Federal income tax purposes had
not yet commenced. As to the latter consideration, the Court of
Appeals held:
under the “steps into the taxpayer’s shoes” principle,
see Nat’l Bank of Commerce, 472 U.S. 713, 725, a tax levy
can demand (1) that a retirement plan directly pay to the
IRS any post-retirement payments that otherwise would
have automatically gone to the taxpayer; and (2) if the
plan allows the participant to demand payment before
retirement or at a different rate--including immediate
payment of the entire present value of benefits--the full
amount that the participant could presently demand.
Retirement plan distributions to satisfy [such] a tax
levy are not subject to the ten-percent penalty tax.
Other circuits have held that the IRS has the authority
to demand annuity and retirement funds when the
beneficiary has the contractual right immediately to
withdraw the money sought. See Kane v. Capital Guardian
Trust Co., 145 F.3d 1218, 1223 (10th Cir. 1998)
(“[Taxpayer’s] right to liquidate his IRA and withdraw the
funds therefrom (even if subject to some interest penalty)
undoubtedly constituted a ‘right to property’ subject to the
IRS’ administrative levy power under [26 U.S.C. sec.
6331(a).] Upon [the plan’s] receipt of the notice of levy,
the IRS stepped into [the taxpayer’s] shoes and acquired all
his rights in the IRA, including his right to liquidate the
mutual fund shares in his IRA and withdraw the cash
proceeds.”
United States v. Novak, 476 F.3d 1041, 1062 (9th Cir. 2007).
Accordingly, for purposes of determining whether the
recapture provision under section 72(t)(4)(A) applies in the
light of a levy action commenced under section 6330, if the levy
on the property occurs as the result of the IRS’s “stepping into
the shoes of the taxpayer,” then that action should be treated as
nonvoluntary on the part of the taxpayer and accordingly, not
subject to either the 10-percent additional tax under section
72(t) or the recapture tax pursuant to section 72(t)(4)(A). If,
Page: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Next
Last modified: March 27, 2008