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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15730
Experience:  15years with H & R Block. Divisional leader, Instructor
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In 2013, I had my 401K account seized by the US government

Customer Question

in 2013, I had my 401K account seized by the US government for a restitution order from 1996. I never received a 1099 in the mail and thought nothing of it since I never received a dime of the money. then about a week ago, I get an IRS bill for 9,000.00 They took about 41,000.00 (all my 401k money). paid taxes in the amount of 7,000.00. thought it was over.
now the irs says I owe, penalty, interest and are counting the whole 41,000.00 as income which obviously puts me into a higher tax bracket.
Are they correct in counting this as income? if so, what breaks do I get since I didn't request the 401k funds and never received any money from it?
thanks, *****
Submitted: 2 years ago.
Category: Tax
Expert:  Robin D. replied 2 years ago.
Hello,Your situation is most unfortunate. Yes, the distribution although you did not request it is still a taxable distribution. BUT, there should be no early distribution penalty because the distribution was a levy on the account and an allowed exception. You need to make sure you are not penalized and extra 10% under Early Distribution and use form 5329 if you were. The distribution was used to pay a tax debt so in the tax laws it was distributed on your behalf, but just not directly in your hands. You should have a tax professional go over your 2013 return again and include the distribution to make certain the IRS has not added the 10% penalty,.
Expert:  Robin D. replied 2 years ago.
Please advise if you need more information on this subject