Can the IRS Levy Your IRA in Florida?

"My IRA is protected. This is Florida." I hear it often, and it is half right. Florida Statute 222.21 does exempt IRAs and qualified retirement plans from legal process by creditors. If a lawsuit judgment creditor comes after your IRA, that statute is a powerful shield.

The IRS is not a judgment creditor under state law. It collects under federal law, and federal law says something very different.

Why the Florida exemption does not apply

Internal Revenue Code section 6334(c) states that, notwithstanding any other law of the United States, no property is exempt from levy other than the property specifically listed in section 6334(a). IRAs are not on that list. State exemptions never were. Under the Supremacy Clause, a federal tax levy is not limited by state exemption statutes.

IRM 5.11.6.3 confirms the IRS view: qualified pension, profit sharing, and stock bonus plans, IRAs, SEP-IRAs, Keoghs, 403(b) plans, and governmental 457(b) plans are "not exempt from levy." So the statute is not your protection.

The manual is.

The three-step test in IRM 5.11.6.3

The Internal Revenue Manual recognizes that retirement accounts "provide for the taxpayer's future welfare" and sets out a series of determinations a Revenue Officer must make, and document, before levying the assets in a retirement account.

Step one: alternatives

The Revenue Officer must first determine what other property is available. If there is non-retirement property that can be used, or if a payment agreement can be reached, those alternatives must be considered before a retirement levy. The IRM adds that an imminent collection statute expiration date, by itself, does not justify levying retirement assets.

Step two: flagrant conduct

This is the heart of the protection. The IRM says that if the taxpayer has not engaged in flagrant conduct, the IRS does not levy on retirement accounts. The determination is case by case, and extenuating circumstances such as illness, job loss, the death of a family member, identity theft, preparer misconduct, or natural disasters can mitigate conduct that might otherwise look flagrant.

The IRM's examples of flagrant conduct include:

• Refusing to pay based on frivolous arguments listed in IRS guidance.
• Voluntarily contributing to retirement accounts while knowing unpaid taxes were accruing.
• Continuing voluntary contributions while claiming inability to pay, after the IRS disallowed those contributions as a necessary expense.
• A conviction for tax evasion, or a civil fraud penalty, for the debt.
• Accumulating unpaid income taxes over multiple periods and refusing to adjust withholding or make estimated payments.
• A pattern of uncooperative behavior: missed deadlines, missed appointments, broken promises to pay, ignoring contact attempts.
• Placing assets beyond the government's reach by hiding, transferring, or moving them offshore.

Automatic enrollment in an employer plan at a limited percentage of pay is specifically not flagrant conduct.

Step three: do you need the money to live?

The final determination is whether you depend on the money in the account, now or in the near future, for necessary living expenses. If you do, the IRM says do not levy. The Revenue Officer uses the Collection Financial Standards in IRM 5.15 to measure necessary expenses, and the life expectancy tables in Publication 590-B to estimate how much you could withdraw each year to make the account last your lifetime. Extraordinary expenses and other income sources are considered.

For a retiree whose IRA supplements Social Security, this step alone often ends the inquiry.

Approvals and forms

A retirement account levy is not something a Revenue Officer can issue alone. The IRM requires use of Form 668-R, Notice of Levy on Retirement Plans, instead of the ordinary Form 668-A, and the SB/SE Director, Collection Area, must approve it. The request is documented on Form 15000, Request for Approval of Levy on Funds in Pension, Retirement Plans or TSP Account. That approval requirement is a meaningful speed bump.

And before any levy, IRC 6330 requires a Collection Due Process notice at least 30 days in advance, which gives you the right to a hearing with the IRS Independent Office of Appeals.

What a levy actually reaches

A levy reaches only your present rights. IRM 5.11.6.3 explains that it does not accelerate payment and is enforceable only when you are eligible to receive the funds. For an IRA, you can typically withdraw at any time, so the levy can reach the balance. For employer plans, the answer depends on plan terms. See IRS levies on 401(k) and employer retirement plans.

The payor withholds federal income tax from the levied amount, and the levy reaches only what remains. You will owe income tax on the distribution, but under IRC 72(t)(2)(A)(vii), not the 10 percent early distribution tax. The IRM directs the IRS to send Letter 3258 to the taxpayer confirming that. Details are in IRS-levied retirement funds and the 10% penalty exception.

Inherited IRAs are different

The IRM notes that inherited IRAs are not treated as retirement funds for these purposes and are handled differently from accounts you own. If you inherited an IRA from a parent or spouse and owe the IRS, do not assume the flagrant conduct protection applies.

If the IRS levied your IRA improperly

If a retirement account was levied without the required notice, without approval, or in violation of IRS procedures, you can ask for the money back. IRC 6343(f), added in 2018, lets you contribute the returned amount, plus interest, back into the IRA or plan without regard to normal contribution limits. The recontribution is treated as a rollover, and any income tax assessed because of the levy is abated if you recontribute by the due date of the return for the year the money is returned. You must request the return within the time limits in IRM 5.11.2.4.1.

When a Revenue Officer asks about your IRA

Expect the question. Form 433-A asks for every retirement account, and a Revenue Officer has to inventory them as part of step one. Answer accurately; hiding an account is the fastest way to turn yourself into a flagrant conduct example. Then explain, with numbers, how the account fits into your retirement budget. If you take monthly or annual distributions to live on, show the statements. If the account is your only reserve for medical costs, say so and document the costs. That evidence goes directly to step three, and it is far more persuasive delivered early than argued after a levy has been approved.

Practical takeaways for Pinellas retirees

The pattern is clear. The IRS rarely takes retirement accounts from people who engage. It does take them from people who stonewall.

For the Pinellas overview, see Pinellas retirement accounts and IRS debt.

Next step

If a Revenue Officer has asked about your retirement accounts, that question is part of the alternatives analysis. Answer it accurately and pair it with a realistic proposal. If you would like a lawyer handling that conversation, call (813) 229-7100. The firm's page on IRS tax levies covers the rest of the levy process.