Professional Tax Research Solutions from the Founder of Kleinrock. tax and accounting research
Parker Tax Pro Library
Accounting News Tax Analysts professional tax research software Like us on Facebook Follow us on Twitter View our profile on LinkedIn Find us on Pinterest
federal tax research
Professional Tax Software
tax and accounting
Tax Research Articles Tax Research Parker's Tax Research Articles Accounting Research CPA Client Letters Tax Research Software Client Testimonials Tax Research Software tax research

Accounting Software for Accountants, CPA, Bookeepers, and Enrolled Agents

CPA Tax Software



IRS Fails to Follow 3-Step Process for Levying Retirement Account, Must Reconsider Collection Alternatives.

(Parker Tax Publishing April 22, 2015)

The Tax Court determined a settlement officer did not follow IRS protocol in sustaining a proposed levy on taxpayers' retirement account, and sent the case back to the IRS Appeals Office for further review. The taxpayers were experiencing economic hardship and relying on loans from a 401(k) account, but the officer did not appear to take that in to consideration when denying collection alternatives. Gurule v. Comm'r, T.C. Memo 2015-61.


The Gurule family has faced myriad medical and financial challenges. Mrs. Gurule suffers from a severe neurological condition that causes her to experience seizures and has prevented her from working. The taxpayers' middle son was in an accident as a child and suffered a brain injury. He had medical problems throughout his life as a result of the injury and passed away in August 2013 from these problems. The associated medical costs compounded the family's financial challenges.

Mr. Gurule worked for General Mills for 18 years, beginning as a technician and advancing within the company. His job required him to move his family several times, most recently from Minnesota to Missouri in 2009. When the family moved to Missouri, Mr. Gurule took distributions from his Code Sec. 401(k) plan account in order to pay for a down payment on a house. Three months later, Mr. Gurule lost his job, preventing the family from finalizing the Missouri house purchase and forcing them to move back to their unsold Minnesota home. After the Minnesota home came under foreclosure, the family was forced to move again.

Due to the family's financial struggles, Mr. Gurule took out several loans from his 401(k) plan to pay for foreclosure, moving, and rent expenses, as well as for his son's medical bills and funeral service expenses.

In 2011, the IRS assessed a tax deficiency of $36,516 and notified the taxpayers of its intent to levy their retirement account to pay the liability. Unable to pay, the taxpayers proposed an offer in compromise and an installment agreement. However, the settlement officer rejected the collection alternatives, concluding the family's reasonable collection potential (RCP) was sufficient to pay the liability in full.


The Tax Court noted that Code Sec. 6343(a)(1)(D) requires the IRS to release a levy upon all, or part of, a taxpayer's property if a levy would cause economic hardship to the taxpayer. The tax court found, however, that despite the taxpayers' assertion that they needed the 401K to pay necessary living expenses and would be harmed by the levy, the settlement officer's case notes did not show that she ever considered, much less made a determination about, the economic hardship claim.

The court found that the settlement officer may have made a material error in calculating the family's RCP, which would affect whether their alternate collection offers were properly denied. The officer calculated as a monthly expense repayments of the loans from the 401(k) account, based on amounts taken out of Mr. Gurule's paychecks. However, the earning statements the officer relied on reflected biweekly, not monthly, earnings, so the taxpayers' actual loan expenses were twice what the officer reported.

Additionally, the court found that the settlement officer did not follow the IRM's three-step process for levying retirement accounts, which includes consideration of special circumstances such as extraordinary expenses. The court noted that this was the case even though the officer was aware that the family was using their 401(k) plan account to pay necessary living expenses and the taxpayers' medical costs were at the time significant and unpredictable.

OBSERVATION: Internal Revenue Manual pt. has a three-step procedure for levying upon retirement accounts. Step 1 requires agents to determine if property other than retirement assets are available for collection. If other funds can be collected to pay the liability, agents should consider those before proceeding against a retirement account. Step 2 requires agents to determine whether a taxpayer's conduct has been flagrant, for example, by making voluntary contributions to a retirement account while asserting an inability to pay tax liabilities. If there is no flagrant conduct, agents should not levy the account. Step 3 requires agents to determine whether the taxpayer currently depends on the money in the retirement account for necessary living expenses, or will need to in the near future. If the taxpayer is dependent on the funds, agents should not levy the account.

In the light of the unclear reasons the officer rejected the Gurules' proposed collection alternatives, the Tax Court was unable to conclude whether proceeding with the collection action was an abuse of discretion and sent the case to the IRS Appeals Office for further consideration and clarification.

For a discussion of IRS collection procedures with respect to tax levies, see Parker ¶260,540. (Staff Editor Parker Tax Publishing)

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

Parker Tax Pro Library - An Affordable Professional Tax Research Solution.

Professional tax research

We hope you find our professional tax research articles comprehensive and informative. Parker Tax Pro Library gives you unlimited online access all of our past Biweekly Tax Bulletins, 22 volumes of expert analysis, 250 Client Letters, Bob Jennings Practice Aids, time saving election statements and our comprehensive, fully updated primary source library.

Parker Tax Research

Try Our Easy, Powerful Search Engine

A Professional Tax Research Solution that gives you instant access to 22 volumes of expert analysis and 185,000 authoritative source documents. But having access won’t help if you can’t quickly and easily find the materials that answer your questions. That’s where Parker’s search engine – and it’s uncanny knack for finding the right documents – comes into play

Things that take half a dozen steps in other products take two steps in ours. Search results come up instantly and browsing them is a cinch. So is linking from Parker’s analysis to practice aids and cited primary source documents. Parker’s powerful, user-friendly search engine ensures that you quickly find what you need every time you visit Our Tax Research Library.

Parker Tax Research Library

Dear Tax Professional,

My name is James Levey, and a few years back I founded a company named Kleinrock Publishing. I started Kleinrock out of frustration with the prohibitively high prices and difficult search engines of BNA, CCH, and RIA tax research products ... kind of reminiscent of the situation practitioners face today.

Now that Kleinrock has disappeared into CCH, prices are soaring again and ease-of-use has fallen by the wayside. The needs of smaller firms and sole practitioners are simply not being met.

To address the problem, I’ve partnered with a group of highly talented tax writers to create Parker Tax Publishing ... a company dedicated to the idea that comprehensive, authoritative tax information service can be both easy-to-use and highly affordable.

Our product, the Parker Tax Pro Library, is breathtaking in its scope. Check out the contents listing to the left to get a sense of all the valuable material you'll have access to when you subscribe.

Or better yet, take a minute to sign yourself up for a free trial, so you can experience first-hand just how easy it is to get results with the Pro Library!


James Levey

Parker Tax Pro Library - An Affordable Professional Tax Research Solution.

    ®2012-2018 Parker Tax Publishing. Use of content subject to Website Terms and Conditions.

IRS Codes and Regs
Tax Court Cases IRS guidance