IRS Cannot Collect Assets of Retirement Fund Member Before Retirement Age

Pursuant to Internal Revenue Service Chief Counsel Advice, the IRS cannot force a member of a state retirement fund to suspend her membership in the fund and receive a distribution of the assets in her account before her normal retirement age.  While Chief Counsel Advice is not binding guidance and cannot be cited as precedent, the analysis provided is helpful to taxpayers in understanding the approach of the IRS on the topic addressed.

The question at issue concerns a 50-year year old woman who has an account with a state retirement fund.  She no longer works for the state, but she has obtained other employment and has not retired.  The terms of the retirement plan indicate the inactive member may elect to suspend her membership in the fund and receive a total distribution of her employee account.  If the election is made, she will not be able to receive retirement benefits when she reaches normal retirement age.  On the other hand, if such an election is not made (that is, her employee account is not distributed), she will be eligible to receive her retirement benefits when she reaches retirement age.  The IRS attempted to levy the member's assets in the fund by "electing," on the member's behalf, to suspend her membership in the fund.  The Chief Counsel Advice concluded the IRS is not entitled to a distribution of the assets in the member's account before she is eligible to receive benefits.  A copy of the Chief Counsel Advice can be found by clicking here.

For more information about this Chief Counsel Advice, please contact Mary Beth Braitman, Terry Mumford, Katrina Clingerman, or Lisa Erb Harrison.