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Ruling: Let IRS garnishee TSP accounts of tax-delinquent feds

May. 17, 2010 - 06:00AM   |  
By STEPHEN LOSEY   |   Comments
Thrift Savings Plan Executive Director Gregory Long predicted TSP would lose any battle with the IRS over tax officials' ability to garnishee TSP accounts of tax-delinquent feds, retirees and military service members.
Thrift Savings Plan Executive Director Gregory Long predicted TSP would lose any battle with the IRS over tax officials' ability to garnishee TSP accounts of tax-delinquent feds, retirees and military service members. (Tom Brown / Staff)

The IRS should be allowed to garnishee the Thrift Savings Plan accounts of tax-delinquent federal employees, retirees and military service members, the Justice Department ruled May 3.

The Federal Retirement Thrift Investment Board, which governs TSP, has until now resisted the IRS' efforts to seize participants' retirement savings. But since Justice's Office of Legal Counsel ruled that a section of the Internal Revenue Code allowing property garnishments should trump the 1986 law that created TSP and protected its accounts from being levied, Executive Director Gregory Long thinks it may just be a matter of time before the IRS can seize accounts.

"This is a fight we are likely eventually going to lose," Long said. If the board does not comply with the ruling, the IRS will likely sue the board, he said.

But Congress likely would have to change the Federal Employees' Retirement System Act that governs TSP to allow IRS levies.

Long is concerned this move could lead to other claimants garnisheeing employees' TSP funds. He wants any change to the Federal Employees' Retirement System Act to specifically limit new garnishments to the IRS.

The board will consult with the Employee Thrift Advisory Council on the Justice ruling, and then talk to Congress about possible changes. The board will not recommend any particular course of action to Congress.

One board member, Thomas Fink, held out hope that lawmakers may choose to definitively exempt TSP accounts from garnishment.

"It's not a slam dunk" that Congress will side with the IRS, Fink said. "It's going to irritate some participants, which are their constituents."

TSP accounts can already be garnisheed to pay for child support, alimony and to pay restitution or other costs related to a child abuse judgment. An employee who is convicted of a national security offense can also have his matching contributions, agency automatic contributions and any money earned from those contributions confiscated; in this case, employees' own contributions and related earnings cannot be seized.

According to IRS statistics released last December, 97,200 federal employees and almost 56,200 active duty and reservist military service members were behind on their taxes, as were 41,000 civilian retirees and 81,900 military retirees. Long said he was unsure how many TSP participants were behind on their taxes.

The more than 276,000 tax-delinquent feds and service members owe the IRS a combined $3 billion.

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