When the IRS goes after your property to collect on tax debt, your wages or your house are the most obvious types.
But what if you have deferred compensation from a previous job? Can the IRS get at that money? In this post, we will discuss that question in the context of a story about former baseball star Darryl Strawberry.
Strawberry was a star player for the New York Mets in the 1980s. But he struggled with cocaine addiction and also played for three other teams - including the Dodgers - before his major league career ended after the 1999 season.
The contract he signed with the Mets in 1985 was structured to include an annuity. An annuity is generally defined as the right to receive periodic payments of a specified amount.
A few years ago, the IRS filed a tax lien against Strawberry, asserting he owed back taxes for four different tax years. His total tax debt is reportedly about $540,000.
Recently, the IRS seized Strawberry's annuity and announced plans to auction it off next month. The IRS and other creditors will share in the proceeds, which are expected to be in the vicinity of $1.3 million - payable over more than 18 years.
Is the IRS on firm ground in taking such a step? As the Internal Revenue Manual explains, IRC 6334 makes certain annuities exempt from levy. These include, for example, annuities offered under the Retired Serviceman's Family Protection Plan.
No such exemption, however, was available for the former baseball star.
Source: CNN Money, "IRS to auction remainder of Darryl Strawberry's Mets salary," Gregory Wallace, Dec. 22, 2014