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I am 50 years old and have an opportunity to receive a lump sum benefit from my previous employer. I have a tax levy against me and I am paying $500 a month to the IRS for back taxes. If I receive this lump sum payment, will the IRS receive part of it before I do, since I am paying back taxes?


Expert Carlton Melton's Answer:

Since you have a tax levy against you, the IRS has the power to seize any funds that it requires to settle your tax debt. However, whether they will do this upon receipt of your lump-sum payment will depend on several factors.


You stated that you are making monthly payments to the IRS. If these payments are part of an installment plan, that plan might have provisions in it that stipulate that you only pay $500 per month. If there is no installment plan, or if the plan does not stipulate such, IRC Sec 6332(c) requires that your bank turn over the necessary funds to the IRS when they are deposited into your account.


Without knowing exactly what agreement has been reached between yourself and the IRS it is difficult to give a precise answer, but I presume to say that once you deposit a large sum into your bank account the bank will freeze the funds and turn over the necessary amount to the IRS. Do not forget that you will still owe taxes on the lump-sum amount since it will be considered income.

Carlton Melton, CPA


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