If you owe a tax debt to the IRS, be aware that they can seize your IRA or other retirement account at any time. You must take steps early on to protect your IRA from the IRS.
First, I note that State laws that protect your IRA from civil creditors DO NOT apply to the IRS. The U.S. government may seize or levy your retirement account for the full amount of taxes, interest and penalties owed, leaving you NOTHING. Compare this to other (more reasonable) countries like the UK, and the U.S. is about the only government on earth who may take what they want, without court action, and leave you penniless.
That’s right, the government need not go into court to take your retirement. The agent assigned to your case simply taps a few keys on his computer and a notice of levy goes out to your IRA administrator. He must sell everything and pay cash over to the IRS.
Adding insult to injury, you must pay tax on the levied moneys as if they were a distribution. If the IRS takes $20,000 on June 10, 2015 out of your IRA, you are to report that as a distribution on your 2015 tax return when you file on April 15, 2016 and pay the tax by that date to avoid new interest and penalties.
Of course, this often results in your tax problems becoming worse, but that agent is only concerned with forcing you to pay back taxes and improve his collection stats. He could care less what happens to you or the new debt he will create.
- No early withdrawal penalty will apply to the levy. You need only pay the tax due. There is a special exception on Form 1040 for the 10% penalty.
So, how can you protect your IRA from the IRS? There is only one option: Move your IRA out of the reach of the IRS and out from the control of the U.S. custodian.
- Even if you use a Self Directed IRA to purchase foreign real estate, that property is under the control of your U.S. custodian. If the IRS issues a levy, he will sell your property to pay Uncle.
The solution is to move your IRA out of the United States and under your control. You can accomplish this by forming an offshore IRA LLC in a tax free jurisdiction like Belize, or a Panama Foundation, and transferring your IRA in to that structure.
Your retirement account retains its tax attributes/benefits, and must follow the various IRS rules. You become the manager of the account and the only signor on the offshore bank account.
In this way, the custodian is out of the picture. He has only two responsibilities: 1) to invest your retirement account into your offshore LLC or Panama Foundation IRA, and 2) file tax reports each year. Once that job is done, he has no say over what happens to the cash.
As I say, you must follow the IRS rules for compliant retirement accounts. This means you may not invest in real estate and live in it, can’t buy collectibles, and may not invest in life insurance policies. Aside from these limitations, you are free to make any investment that is in the best interest of the account. As the manager and fiduciary, all responsibility is shifted to you.
If you decide to invest in real estate (rental properties) and physical gold stored in a vault in Panama or Switzerland, that’s your choice. You have a right to diversify and invest as you feel is most advantageous. If it just happens that offshore bank accounts in the name of the IRA, physical gold, and foreign real estate, are exempt from the IRS reporting requirements, then that’s good news.
I would like to point out that, when you go to protect your IRA from the IRS, you may not move assets out of the United States for the purpose of keeping them out of the reach of the great collector. I suggest you must have other motivations, such as to diversify your holdings and increase returns. Hiding assets or avoiding a levy should never be your only motivation for moving money or assets offshore.
I hope this post on how to protect your IRA from the IRS has been helpful. For more information on going offshore, please see Premeir Offshore. For detailed articles on doing battle with the IRS, see Tax Debt Relief 24*7. Both of these signs are excellent sources of information.
