Applicability of Tax Levies Under 26 U.S.C. § 6334 To Thrift Savings Plan Accounts, 10-5

CourtOpinions of the Office of Legal Counsel of the Department of Justice
Citation34 Op. O.L.C. 1
Docket Number10-5
Decision Date03 May 2010
PartiesAPPLICABILITY OF TAX LEVIES UNDER 26 U.S.C. § 6334 TO THRIFT SAVINGS PLAN ACCOUNTS

34 Op. O.L.C. 1

APPLICABILITY OF TAX LEVIES UNDER 26 U.S.C. § 6334 TO THRIFT SAVINGS PLAN ACCOUNTS

No. 10-5

United States Department of Justice

May 3, 2010


DANIEL L. KOFFSKY Deputy Assistant Attorney General

Applicability of Tax Levies Under 26 U.S.C. § 6334 To Thrift Savings Plan Accounts

Thrift Savings Plan accounts are subject to federal tax levies under sections 6331 and 6334 of the Internal Revenue Code.

MEMORANDUM OPINION FOR THE CHIEF COUNSEL INTERNAL REVENUE SERVICE

Your office has asked whether Thrift Savings Plan (“TSP”) accounts, which permit tax-deferred retirement savings for certain federal employees, are subject to federal tax levies under sections 6331 and 6334 of the Internal Revenue Code, notwithstanding a statute that, standing alone, would protect such accounts from “levy, ” except as expressly provided in that statute.[1]We believe that TSP accounts are subject to federal tax levies under the applicable statutes.

I.

Your question deals with the interaction between the federal tax levy provisions of the Internal Revenue Code, see 26 U.S.C. §§ 6321, 6331, 6334 (2006), and a provision of the Federal Employees’ Retirement System Act of 1986 (“FERSA”), 5 U.S.C.A. § 8437(e)(2) (West 2007).

The Internal Revenue Code has long given broad authority to the Treasury Secretary to collect unpaid federal taxes (and associated interest, penalties, and costs) by levy. See Internal Revenue Code of 1954, §§ 6331(a), 6334(c), 68A Stat. 1, 783, 785. Under current Code provisions, “[i]f any person liable to pay any tax neglects or refuses to pay the same after demand, ” the amount of the liability, including interest and penalties, “shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.” 26 U.S.C. § 6321. If a taxpayer “liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, ” the Treasury Secretary may “collect such tax (and such further sum as shall be sufficient to cover the expenses of the levy) by levy upon all property and rights to property (except such property as is exempt under section 6334) belonging to such person or on which there is a lien provided in this chapter [which includes section 6321] for the payment of such tax.” Id. § 6331(a). The code defines such levies to “include[] the power of distraint and seizure by any means” and states that “[i]n any case in which the Secretary may levy upon property or rights to property, he may seize and sell such property or rights to property (whether real or personal, tangible or intangible).” Id. § 6331(b).

Section 6334(a) does exempt specified categories of assets from levies. Since 1966, such exempt assets have included “[a]nnuity or pension payments under the Railroad Retirement Act, benefits under the Railroad Unemployment Insurance Act, special pension payments received by a person whose name has been entered on the Army, Navy, Air Force, and Coast Guard Medal of [ 2] Honor roll (38 U.S.C. 1562), and annuities based on retired or retainer pay under chapter 73 of title 10 of the United States Code.” 26 U.S.C. § 6334(a)(6) (codifying the Federal Tax Lien Act of 1966, Pub. L. No. 89-719, § 104(c)(2), 80 Stat. 1125, 1137).[2] Section 6334(c) directs that “[n]otwithstanding any other law of the United States (including section 207 of the Social Security Act), no property or rights to property shall be exempt from levy other than the property specifically made exempt by subsection (a).” See 26 U.S.C. § 6334(c). Section 6334 makes no express exemption for TSP accounts.

Congress enacted FERSA in 1986 to reform the retirement savings system for federal employees. See FERSA § 100A, 5 U.S.C. § 8401 note (2006). Among other things, FERSA established the Thrift Savings Plan, which enables federal employees to hold individual retirement savings accounts in the Thrift Savings Fund, an investment fund managed by the Federal Retirement Thrift Investment Board (“FRTIB”). See 5 U.S.C.A. §§ 8432, 8437 (West 2007 & West Supp. 2009); 5 U.S.C. §§ 8472, 8479(b) (2006). These accounts, commonly known as “Thrift Savings Plan” or “TSP” accounts, see 5 C.F.R. § 1690.1 (2009), offer federal employees a tax-deferred retirement savings opportunity similar to that offered to private-sector employees by so-called “401(k)” plans established under section 401(k) of the Internal Revenue Code, 26 U.S.C.A. § 401 (West Supp. 2009). See 5 U.S.C. § 8440 (2006); see also, e.g., Hewitt v. Thrift Sav. Plan, 664 F.Supp.2d 529, 530 (D.S.C. 2009) (describing the Thrift Savings Plan as “a retirement plan for certain federal government employees that was designed to allow government employees savings-related benefits very similar to those enjoyed by private sector employees whose employers offer them 401(k) retirement plans”); Cavanaugh v. Saul, 233 F.R.D. 21, 22 (D.D.C. 2005) (similar); In re Hasse, 246 B.R. 247, 252 (Bankr. E.D. Va. 2000) (similar).

FERSA includes a provision that broadly protects assets in TSP accounts from “levy, ” subject to specified exceptions. It states:

Except as provided in paragraph (3), sums in the Thrift Savings Fund may not be assigned or alienated and are not subject to execution, levy, attachment, garnishment, or other legal process. For the purposes of this paragraph, a loan made from such Fund to an employee or Member shall not be considered to be an assignment or alienation

5 U.S.C.A. § 8437(e)(2). The cross-referenced paragraph (3) permits legal process to obtain “[m]oneys due or payable from the Thrift Savings Fund” or the “balance” in a TSP account for enforcement of certain child support or alimony obligations under the Social Security Act, 42 U.S.C.A. § 659 (West Supp. 2009); enforcement of certain victim restitution orders under the Mandatory Victims Restitution Act of 1996 (“MVRA”), 18 U.S.C. § 3663A (2006); forfeiture under a FERSA provision, 5 U.S.C.A. § 8432(g)(5), of government contributions to a TSP account based on the account-holder’s commission of one or more specified national security offenses; and payments required by another FERSA provision, 5 U.S.C. § 8467 (2006), to satisfy certain divorce, annulment, or separation decrees and certain judgments for physical, sexual, or [ 3] emotional abuse of a child. See 5 U.S.C.A. § 8437(e)(3). Paragraph (3) does not cross-reference section 6334 and thus does not expressly indicate that federal tax levies under that provision may be imposed on TSP accounts.

II.

A.

To resolve the question here, we must reconcile these two statutes, each of which appears exclusive on its face. While FERSA provides that funds in TSP accounts shall not be subject to levy except as provided in 5 U.S.C.A. § 8437(e)(3), the Internal Revenue Code directs that “[n]otwithstanding any other” federal law, no property is exempt from federal tax levies except as provided in section 6334(a) of the Code. And although both statutes include express exceptions, neither includes a cross-reference to the other specifying how the two statutes should be reconciled.[3]

Despite the apparent conflict between the TSP provision and the federal tax levy statute, our “duty” is “to regard each as effective” if the two statutes are “capable of co-existence.” Morton v. Mancari, 417 U.S. 535, 551 (1974). “[I]t is ‘[a] long-standing maxim of statutory construction that statutes are enacted in accord with the legislative policy embodied in prior statutes, and that therefore statutes dealing with the same subject should be construed together.’” Memorandum for General Counsel, Department of Commerce, from Randolph D. Moss, Acting Assistant Attorney General, Office of Legal Counsel, Re: Relationship Between Illegal Immigration Reform and Immigrant Responsibility Act of 1996 and Statutory Requirement for Confidentiality of Census Information at 5 (May 18, 1999) (quoting Memorandum for Glen E. Pommerening, Assistant Attorney General for Administration, from Antonin Scalia, Assistant Attorney General, Office of Legal Counsel, Re: Establishing a Maximum Entry Age Limit for Law Enforcement Officer Positions in the Department of Justice at 3 (Apr. 3, 1975)), available at http://www.justice.gov/olc/opinionspage.htm (“ IIRIRA Opinion”). In our view, the texts of the two statutes are properly reconciled by giving primacy to the federal tax levy provision in section 6334. [ 4]

Although the TSP provision may appear absolute if read in isolation, section 6334(c)’s “notwithstanding” clause indicates by its terms that all “other law[s] of the United States, ” a category that necessarily includes FERSA, are ineffective to bar a federal tax levy, except as provided by the express exceptions in section 6334(a). As a general rule “the use of such a ‘notwithstanding’ clause clearly signals the drafter’s intention that the provisions of the ‘notwithstanding’ section override conflicting provisions of any other section.” Cisneros v. Alpine Ridge Group, 508 U.S. 10, 18 (1993); see also, e.g., IIRIRA Opinion at 7 (observing that a prefatory “notwithstanding” clause “does reflect a congressional intention to displace inconsistent law”). Indeed, some courts have observed that “‘a clearer statement’” of congressional intent to supersede all other laws “‘is difficult to imagine, ’” see Cisneros, 508 U.S. at 18 (quoting Liberty Maritime Corp. v. United States, 928 F.2d 413, 416 (1991) (internal quotation marks omitted) (collecting other similar cases), and the Supreme Court has described the “notwithstanding” clause in section 6334 as “direct[ing]” that “[t]he enumeration [of exceptions] contained in § 6334(a) . . . is exclusive.” Drye v. United States, 528 U.S. 49, 56 (1999); see also In re Beam (Beam v. IRS), 192 F.3d 941, 944 (9th Cir. 1999) (describing section 6334 as “unambiguous” in indicating “that Congress clearly intended to exclude from IRS levy only those 13 categories of...

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