In our recently published book, Asset Protection 2015: IRS Tax Audits & Lawsuits by Gary S. Wolfe, Esq., Alan Jampol, Esq, and Steven Piascik, CPA/MT, one chapter that we feel is extremely relevant to today’s economic environment is IRS: Jeopardy Assessment (i.e. pre-audit asset seizures).
As a courtesy to my subscribers I am offering this chapter to you free. Please see below.
IRS: Jeopardy Assessment
Under a jeopardy assessment, Taxpayers who have unreported income may be subject to immediate IRS seizure of assets. If the IRS determines that tax collection is at risk, the IRS may immediately seize taxpayer assets without prior notice.
The IRS must have made a determination that a deficiency existed and that tax collection would be jeopardized if the IRS were to follow normal assessment and collection procedures. (IRC § 6861(a)).
In the event of a jeopardy assessment, the IRS is permitted to send a notice and demand for payment immediately. (IRC § 6861(a)).
Normally, the IRS assertion of an income tax deficiency is made after the taxpayer’s year closes and the tax return is filed. However, if the IRS determines that a Taxpayer (who received significant income) may prejudice tax collection (e.g., leave the country, place assets beyond IRS reach) the IRS may issue a jeopardy assessment (levy on Taxpayer’s property without prior notice (IRC § 6861(a)).
IRS jeopardy assessment requirements:
1. The Taxpayer’s year is completed;
2. The due date of the tax return (with extensions) has passed;
– Taxpayer did not file tax return or;
– Tax liability on the filed return is understated, and;
– Tax collection is jeopardized.
Treas. Reg. Sections 301.6861 – 1(a)
IRS general levy requirements (IRC § 6330, 6331) do not apply if the IRS finds that tax collection is in jeopardy.
Under IRC § 6330(f), the IRS is entitled to levy on taxpayer’s property, without prior notice to Taxpayer.
To justify a jeopardy levy, the IRS must be able to show:
1. The Taxpayer is (or appears to be) designing to quickly depart from the U.S.;
2. The Taxpayer is (or appears to be) designing to quickly place their assets beyond the reach of the IRS by:
a. Removing assets from the U.S.;
b. Concealing assets;
c. Dissipating assets;
d. Transferring assets to third parties; or
3. The Taxpayer is in danger of becoming insolvent (bankruptcy or receivership, alone is not sufficient evidence to establish financial insolvency for jeopardy purposes).
The IRS procedures for a jeopardy levy, (as stated in the Internal Revenue Manual):
1. IRS chief counsel must personally give prior written approval to a jeopardy levy (IRC § 7429(a));
2. Thereafter, the IRS must provide Taxpayer with a written statement, within five days, of the information upon which the IRS relied in making its jeopardy levy (IRC § 7429(a)(1)(B));
3. IRM 5.11, Notice of Levy Handbook section 3.5(5) instructs the IRS to try to give Taxpayer notice in person, or certified mail (last known address);
IRS notice should include:
a. Reason for jeopardy levy;
b. Taxpayer’s rights to administrative and judicial review (IRC § 7429);
c. Notice of Taxpayer’s rights to administrative and judicial review within a reasonable period of time (under IRC § 6330).
The jeopardy assessment may be made either:
Before or after a notice of tax deficiency is issued, and;
Also, either before or after a Tax Court petition is filed (IRC § 6861(a), Treas. Reg. Section 301.6861 – 1(a).
IRS notice and demand for payment gives the Taxpayer ten days to pay the tax in full or post a bond to stay collection (Treas. Reg. Section 301.6861 – 1(d).
If tax collection is determined to be in jeopardy, the IRS may immediately levy on Taxpayer’s assets (without 30 day notice of intent to levy) (IRC § 6331(d)(3)), subject to IRS chief counsel personally approving the levy in writing (IRC § 7429(a)(1)(A)).
The IRS must send a formal notice of deficiency within 60 days after making the jeopardy assessment (IRC § 6861(b)). Upon receipt of notice of deficiency, the Taxpayer may file a Tax Court petition for redetermination of the deficiency amount (IRC § 6213(a)).
Under IRC § 6213(a), the Tax Court petition stops additional IRS assessments until the Tax Court decision is finalized. However, upon receipt of the notice of deficiency, payment (of the tax assessed), or a bond is required, within ten days, to stay collection (IRC § 6863(a)).
Under a jeopardy assessment, any amount collected by the IRS, in excess of the amount determined by the Tax Court, (as the final assessment), is refunded (IRC § 6861(f)).