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TSP places holds on tax-delinquent participants' accounts

Jun. 25, 2010 - 06:00AM   |  
By STEPHEN LOSEY   |   Comments
Gregory Long, executive director of the board governing the Thrift Savings Plan, wants changes in law to ensure that only the IRS will be able to place new levies on TSP accounts.
Gregory Long, executive director of the board governing the Thrift Savings Plan, wants changes in law to ensure that only the IRS will be able to place new levies on TSP accounts. (Tom Brown / Staff file photo)

The board governing the Thrift Savings Plan has begun placing holds on some tax-delinquent participants' accounts until Congress straightens out a dispute over IRS' authority to confiscate those funds.

So far, two participants' accounts have been held in abeyance since the Justice Department's Office of Legal Counsel said last month that IRS should be able to levy TSP funds. But more holds could come.

The Federal Retirement Thrift Investment Board said at Thursday's meeting of the Employee Thrift Advisory Council that it holds accounts in abeyance only if it receives a court order and if the IRS agent involved specifically cites the May 3 Justice Department ruling.

Participants whose funds are being held can still transfer money between funds and accrue earnings. But they will not be able to withdraw funds, even if they are retired.

The board until now has resisted IRS efforts to seize TSP accounts. That's because the 1986 law governing TSP allows funds to be garnisheed only to pay for child support and 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 these cases, employees' own contributions and related earnings cannot be seized.

The TSP law does not permit IRS to garnishee accounts to cover tax delinquencies. But the Internal Revenue Code allows the IRS to seize private-sector 401(k) accounts. And Justice's nonbinding ruling last month said the Internal Revenue Code should trump the TSP law.

The TSP board's executive director, Gregory Long, said the Justice ruling likely makes it inevitable that IRS will gain access to TSP funds.

The board will likely ask Congress to change the law to clarify that IRS and only the IRS can levy TSP accounts for seriously tax-delinquent feds. Long is concerned that changes could lead to other claimants garnisheeing employees' TSP funds, and wants any alteration to specifically limit new levies to IRS.

Long said that while the two laws remain in conflict with one another, he is in an "untenable situation." If the board refuses to allow IRS to levy tax-delinquent feds' funds, IRS could sue the board. But if Long who is the managing fiduciary of TSP and the only person who can authorize fund disbursement decides to release those funds, he could be sued by participants for releasing TSP funds against the law.

The board now gets few levy requests from IRS about a dozen each year but Long said that is because IRS knows the board will turn them down. He said he did not know how many levy requests the board would receive if IRS gets levy authority.

Time is running out in this session of Congress, and it could take until 2011 to resolve the issue.

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