What Is an IRS Jeopardy Assessment?
If the IRS determines that a taxpayer is likely to engage in covert activities to hide assets involved in a tax debt collection process (i.e., a levy), they may authorize a jeopardy assessment to prevent concealment. Jeopardy assessments are typically issued following a routine evaluation that finds the taxpayer is taking action to improperly impact an attempt by the IRS to collect taxes owed.
Failing to file a federal tax return can also prompt a jeopardy assessment, especially if the taxpayer has a history of not filing tax returns, understating tax liabilities, or owes a large back tax debt.
What Triggers a Jeopardy Assessment by the IRS?
The IRS begins an immediate jeopardy assessment on a taxpayer if they find the individual is:
- Planning to leave the U.S. or a U.S. territory
- Concealing assets or other “liquid” property
- Planning to send property out of the U.S. to hide it
- Intending to do something that would severely interfere with the tax debt collection process
- Actively dissipating assets (i.e., depleting assets by gambling them away, going on extravagant shopping sprees, or fraudulently giving assets away to third parties)
- Using aliases and/or multiple addresses for the purpose of disguising assets
IRS auditors, collections agents, and investigative analysts can easily obtain information about a taxpayer that could prompt the initiation of a jeopardy assessment. In some cases, the IRS receives information from public sources (state attorney generals, law enforcement, acquaintances of the taxpayer) that triggers a jeopardy assessment.
What is the Jeopardy Assessment Process?
Code §§ 6851 and 6861 state that IRS officials can seize a taxpayer’s assets at any time once the proper documents are filed with a local IRS office. In fact, an individual targeted by a jeopardy assessment may not receive a notice regarding the seizure of assets. However, the IRS must provide an assessment notice to the individual within five days of seizing assets without notice that explains their right to an administrative review.
If the individual decides to contest the jeopardy assessment, the IRS must prove to the judge that they have clear evidence showing the validity of issuing a jeopardy assessment against the individual.
How Much Time Do You Have to Pay a Jeopardy Assessment Tax?
The laws differ among the 50 states regarding jeopardy assessments. Generally, the district director of a local tax center will mail a demand notice requesting immediate payment of the jeopardy assessment amount. The taxpayer then has 10 days to pay the amount on the demand notice.
Regardless of what a taxpayer’s state tax laws say, any demand for payment stemming from a jeopardy assessment notice should be addressed as soon as possible to avoid loss of assets or even arrest for defrauding the IRS.
Will the IRS Issue a Levy to Collect Jeopardy Assessment Tax?
Yes, the IRS can levy to collect a tax debt after jeopardy assessment. If a jeopardy assessment is processed and enacted on an individual, the IRS does not have to issue a notice. In other words, a taxpayer may go to bed with $4 million dollars in the bank and find their bank account has been cleaned out by the IRS the next morning due to a jeopardy assessment levy.
In cases that do not involve a jeopardy assessment, however, the IRS typically issues a notice to taxpayers who are about to have their assets levied. After receiving a levy notice, you have 30 days to request a Collection Due Process (CDP) hearing. At this hearing, you can dispute the levy, agree to an IRS payment plan, or present other reasons why you don’t think the levy is fair.
Can the IRS Sell Seized Property from a Jeopardy Levy?
Yes, unless the taxpayer can prove in a CDP hearing that the seizure was unwarranted or they pay off the tax debt that caused their property to be seized.
The IRS generally prefers to arrange reasonable payment plans with taxpayers over seizing assets and having to sell them to recoup a tax debt. Seizure of property is a last-ditch effort by the IRS to resolve large tax debts.
How Do You Challenge an IRS Jeopardy Assessment and Jeopardy Levy?
To challenge an IRS Jeopardy Assessment and levy, you will need to file a request for a Collection Due Process hearing. A CDP hearing gives the taxpayer a chance to explain why they disagree with IRS assessments of their intent to conceal assets, dispute the amount of taxes owed, or provide other evidence that proves the IRS wrongly issued a Jeopardy Assessment.
In addition, Part 8 of 8.24.2.2.1 states that “taxpayers receiving all required pre-levy notices can file an appeal under the Collection Appeals Program (CAP). However, taxpayers cannot go to court because they disagree with an appeal decision from CAP hearings or other equivalent hearings”.
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