4.15.2 Examination Procedures

Manual Transmittal

October 04, 2018

Purpose

(1) This transmits revised IRM 4.15.2, Jeopardy/Termination Assessments, Examination Procedures.

Material Changes

(1) Significant changes to this IRM are listed in the table below.

IRM Reference Description of Change
4.15.2.1
  • Added new content to describe the internal controls framework required by IRM 1.11.2.2.5, Address Management and Internal Controls.

4.15.2.1.1 through 4.15.2.1.6
  • Added content to provide background information, legal authorities, roles and responsibilities, information about program management and review, acronyms and related resources to assist and inform users.

4.15.2.2.4
  • Added guidance for establishing controls.

4.15.2.2.5
  • Moved IRM 4.15.2.4.1.3.7, Transaction Code (TC) 914 Report into this section to improve the flow of information.

4.15.2.2.6
  • Moved IRM 4.15.2.2.5.4, Area Report into this section.

  • Added Form 6388 as a reference.

4.15.2.4.1.2
  • Added caution statement.

4.15.2.4.1.2.4
  • Changed format of examples for better readability and added guidance for government’s burden of proof.

4.15.2.4.1.3
  • Changed format of steps for better readability.

  • Added a paragraph of guidance.

4.15.2.4.1.4
  • Consolidated information previously found in IRM 4.15.2.4.1.3.6, Approval Report, and IRM 4.15.2.4.1.4, Preparing the Package, to reduce redundancy.

4.15.2.4.1.4.1
  • Reorganized information for better readability.

  • Information previously found in IRM 4.15.2.4.1.5, Securing Approval of the Package was moved to this section.

  • Added stakeholder roles to the approval process.

4.15.2.4.1.4.2
  • Reorganized information for better readability.

  • Information previously found in IRM 4.15.2.4.1.6, Processing After Approval was moved to this section.

  • Made minor changes to update steps to include electronic tools.

4.15.2.5
  • Transferred obsolete IRM 4.15.5, Post-Assessment Procedures moved into this subsection of IRM 4.15.2.

  • Changed order of the content to improve the readability.

4.15.2.5.1
  • Moved IRM 4.15.5.5, Notice of Deficiency into this section.

4.15.2.5.2
  • Moved IRM 4.15.5.4, Termination Follow-Up into this section.

4.15.2.5.2.1
  • Moved IRM 4.15.5.4.2, Filing Requirements by the Taxpayer into this section.

4.15.2.5.2.2
  • Moved IRM 4.15.5.4.3, Examination of Full-Year Return into this section.

4.15.2.5.3
  • Moved IRM 4.15.2.2.5.1, Request for Review into this section for a better flow of guidance.

4.15.2.5.4
  • Obsoleted IRM 4.15.4, Administrative and Judicial Review and moved into IRM 4.15.2.5.4.

4.15.2.5.4.1
  • IRM 4.15.4.2, Administrative Reviews moved to IRM 4.15.2.5.4.1.

  • IRM 4.15.4.2.1 moved to IRM 4.15.2.5.4.1.1.

  • IRM 4.15.4.2.2 moved to IRM 4.15.2.5.4.1.2.

  • IRM 4.15.4.2.3 moved to IRM 4.15.2.5.4.1.3.

  • IRM 4.15.4.2.4 moved to IRM 4.15.2.5.4.1.4.

4.15.2.5.4.2
  • IRM 4.15.4.3, Judicial Review moved to IRM 4.15.2.5.4.2.

  • IRM 4.15.4.3.1 moved to IRM 4.15.2.5.4.2.1.

  • IRM 4.15.4.3.2 moved to IRM 4.15.2.5.4.2.2.

  • IRM 4.15.4.3.3 moved to IRM 4.15.2.5.4.2.3.

4.15.2.5.4.3
  • IRM 4.15.4.4, Area Review moved to IRM 4.15.2.5.4.3.

4.15.2.5.5
  • Moved IRM 4.15.5.2, Abatement Procedures into this section.

4.15.2.5.6
  • Moved IRM 4.15.5.3, Possessor of Cash into this section.

4.15.2-1 through 4.15.2-2
  • Added a paragraph to the pattern letters to include Collection Due Process rights.

4.15.2-7
  • Deleted exhibit because Form 2645 is a published document.

(2) During this revision, minor changes have been made to update websites, IRM references, references to documents, and to provide clarity.

Effect on Other Documents

This material supersedes IRM 4.15.2, dated June 16, 2014.

Audience

Small Business/Self-Employed (SB/SE), Tax Exempt and Government Entities (TE/GE), Large Business and International (LB&I), and Appeals employees.

Effective Date

(10-04-2018)

Michael W. Damasiewicz
Director, Examination - Field and Campus Policy
SE:S:E:HQ:EFCP
Small Business/Self-Employed

Program Scope and Objectives

  1. Purpose. This transmits revised IRM 4.15.2, Jeopardy/Termination Assessments, Examination Procedures.

  2. Audience. These procedures apply to Small Business and Self-Employed (SB/SE), Tax Exempt and Government Entities (TE/GE), Large Business and International (LB&I) and Appeals employees.

  3. Policy Owner. The Director, Examination - Field and Campus Policy, which is under the Director, Headquarters Examination.

  4. IRM Owner. Field Examination Special Processes (FESP), which is under the Director, Examination - Field and Campus Policy.

  5. Primary Stakeholders. The primary stakeholders include SB/SE Examination, SB/SE Collection, SB/SE Technical Services and Appeals.

  6. Contact Information. To recommend changes or make any other suggestions related to this IRM section see IRM 1.11.6.6, Providing Feedback About an IRM Section - Outside of Clearance.

  7. Program Goals. The goal of this section is to provide information and guidance on the Jeopardy/Termination Assessment Program.

Background

  1. This section provides guidelines for the identification, assignment, development, and referral of jeopardy/termination assessments, administrative and judicial review procedures, and post-assessment procedures.

Authority

  1. By law, the Internal Revenue Service has the authority to conduct examinations under Title 26, Internal Revenue Code, Subtitle F – Procedure and Administration, Chapter 78, Discovery of Liability and Enforcement of Title, Subchapter A, Examination and Inspection, which includes, but is not limited to, the following IRC sections:

    • IRC 6201, Assessment Authority.

    • IRC 6851, Termination Assessments of Income Tax.

    • IRC 6852, Termination Assessments in Case of Flagrant Political Expenditures of Section 501(c)(3) Organizations.

    • IRC 6861, Jeopardy Assessments of Income, Estate, Gift, and Certain Excise Taxes.

    • IRC 6862, Jeopardy Assessment of Taxes Other Than Income, Estate, Gift, and Certain Excise Taxes.

    • IRC 6867, Presumptions Where Owner of Large Amount of Cash is Not Identified.

    • IRC 7602, Examination of Books and Witnesses.

    Note:

    Additional authority for conducting examinations is contained in the 26 CFR 601.105, Examination of returns and claims for refund, credit or abatement; determination of correct tax liability.

Roles and Responsibilities

  1. The Director, Headquarters Examination, is the executive responsible for providing policy and guidance for field employees and ensuring consistent application of policy, procedures and tax law to effect tax administration while protecting taxpayers’ rights. See IRM 1.1.16.3.5, Headquarters Examination, for additional information.

  2. The Director, Examination - Field and Campus Policy (formerly known as the Director, Examination AUR/Policy), reports to the Director, Headquarters Examination, and is responsible for the delivery of policy and guidance that impacts the field examination process. See IRM 1.1.16.3.5.1, Exam/AUR Policy, for additional information.

  3. Field Examination Special Processes (FESP), which is under the Director, Examination - Field and Campus Policy, is the group responsible for providing oversight, policy and procedural guidance on specialized examination processes to SB/SE field examiners and managers. See IRM 1.1.16.3.5.1.2, Examination-Field Special Processes.

Program Management and Review

  1. Periodic program reviews are conducted by FESP to:

    • Assess the effectiveness of specific programs within Examination or across the organization,

    • Determine if procedures are being followed,

    • Validate policies and procedures, and

    • Identify and share best/proven practices.

Acronyms

  1. The following table lists commonly used acronyms:

    Acronym Definition
    BMFOL Business Master File On-Line
    CCP Centralized Case Processing
    BRTVUE Business Return Review
    AMDIS Audit Management Display Information System
    CI Criminal Investigation
    COGS Cost of Goods Sold
    DLN Document Locator Number
    DOJ Department of Justice
    EEFax Enterprise e-Fax
    ERCS Examination Returns Control System
    FESP Field Exam Special Processes
    IDRS Integrated Data Retrieval System
    IMFOL Individual Master File On-Line
    IRC Internal Revenue Code
    IRM Internal Revenue Manual
    LB&I Large Business & International
    MF Master File
    NMF Non-master File
    RO Revenue Officer
    RTVUE Return Review (IMF only)
    SEP Special Enforcement Program
    SFR Substitute for Return
    SSN Social Security Number
    TC Transaction Code
    TEGE Tax Exempt Government Entities
    TFRP Trust Fund Recovery Penalty
    TIN Taxpayer Identification Number

Related Resources

  1. The following table contains related resources referenced in this IRM:

    Resources Title
    IRC 6091 Place for Filing Returns or Other Documents.
    IRC 6851 Termination Assessments of Income Tax.
    IRC 6861 Jeopardy Assessments of Income, Estate, Gift, and Certain Excise Taxes.
    IRC 6862 Jeopardy Assessment of Taxes Other Than Income, Estate, Gift, and Certain Excise Taxes.
    IRC 6867 Presumptions Where Owner of Large Amount of Cash is Not Identified.
    IRC 7429 Review of Jeopardy Levy or Assessment Procedures.
    IRM 1.2.13.1.27 Policy Statement 4-88.
    IRM 1.2.13.1.28 Policy Statement 4-89.
    IRM 4.4.3.4 Transferring NMF Credits to MF Deficiency.
    IRM 4.8.2.3.1 Mandatory Review Cases.
    IRM 4.8.8.7 Jeopardy and Terminations.
    IRM 4.8.9.17.3 Jeopardy and Termination Assessments.
    IRM 4.12.1 Nonfiled Returns.
    IRM 5.17.15.3 Presumption Regarding $10,000 in Unclaimed Cash.

Examination Jeopardy/Termination Coordinator

  1. Each Area Director in SB/SE (comparable role in other business units) will appoint an Examination Jeopardy/Termination Coordinator (hereinafter referenced as the Exam Coordinator) to control jeopardy/termination assessments. The Exam Coordinator is generally a SEP Agent. Technical Services has its own Jeopardy/Termination Reviewer that will assist field examination as outlined in IRM 4.8.8.7.1, Reviewer Responsibilities.

  2. The Exam Coordinator will be responsible for the following:

    1. Review possible jeopardy/termination assessment cases to determine if a case meets jeopardy/termination criteria;

    2. Contact and coordinate with other functions regarding the possible jeopardy/termination;

    3. Assign an examiner to prepare a jeopardy/termination case;

    4. Control a jeopardy/termination;

    5. Secure approval of the jeopardy/termination package by Counsel and the Area Director;

    6. Process the approved jeopardy/termination; and

    7. Follow-up on jeopardy/termination cases.

Review Cases

  1. The Exam Coordinator will review all cases that are forwarded to them to determine if the case meets the criteria for a jeopardy/termination assessment.

Contact and Coordination

  1. The Exam Coordinator will contact and coordinate with other functions regarding jeopardy/terminations under Examination responsibility.

    Note:

    Technical Services will act as a liaison between Examination, Collection, CI, TE/GE, Appeals, and Counsel. Employees must keep Technical Services informed of the status of a jeopardy/termination case. The responsibility for taking necessary actions on any jeopardy/termination assessment case remains with the function that has jurisdiction for taking the required actions.

  2. The Exam Coordinator will contact other functions to determine if the taxpayer is under active consideration by another function or operating division.

  3. The Exam Coordinator will inform other functions that a possible jeopardy/termination is in progress.

    1. Contact Counsel to discuss the possible jeopardy/termination assessment. Counsel must approve in writing, whether there should be a jeopardy/termination.

    2. Notify the CCP Manager that a potential jeopardy/termination assessment case is underway. Provide CCP Manager with a tentative target date for assessment purposes and with the number of entities and tax periods involved.

    3. Inform the Examination Field Territory Manager of the possible jeopardy/termination.

Assignment of Examiner

  1. The Exam Coordinator will arrange to have an examiner assigned to prepare the jeopardy/termination case. The Exam Coordinator will contact the group manager to request an examiner be assigned to the case. The group manager will provide the Exam Coordinator with the name of the examiner who will prepare the jeopardy/termination case. The examiners selected are generally SEP agents. See IRM 4.16.1.3.1, General, for more information on the role of SEP agents. The examiner chosen must not have any taint issues.

    Example:

    The examiner chosen must not have access to grand jury materials or participated in the grand jury phase of a criminal investigation.

Control of the Case

  1. The Exam Coordinator will control the jeopardy/termination to make sure that the case is developed, prepared, and processed as quickly as possible. The Exam Coordinator will make a quarterly review of outstanding Transaction Code (TC) 914 accounts to determine if they are still needed. See IRM 4.15.2.2.5, for more information on TC 914. Due to the urgency involved in jeopardy/termination cases, the case will be given the highest priority of handling within and between the various functions.

    1. Jeopardy Assessment controls must be established on MasterFile.

    2. Termination Assessment controls must be established on Non-Master File.

    3. See IRM 4.15.2.4.1.3.4, for more information on temporary TINs.

Transaction Code (TC) 914 Report

  1. A TC 914 is placed on the account when CI conducts an investigation. A TC 914 temporarily suspends civil enforcement action. The Exam Coordinator may review outstanding TC 914 accounts on a quarterly (fiscal year) basis to determine if they are still needed, and will coordinate findings with Criminal Investigation. The Exam Coordinator may terminate controls if abatement is required by a decision of the Tax Court, or, if no petition is filed with the court, when the period for filing such petition expires. The Exam Coordinator will contact Cl and request removal of the TC 914 to terminate the control.

Area Report

  1. The Exam Coordinator will prepare Form 6388, Annual Report (Fiscal Year) of Jeopardy and Termination Assessments, for their Field Territory Manager.

Identifying Cases

  1. Employees must be aware of the criteria for jeopardy/termination cases and identify situations where a possible jeopardy/termination may exist.

  2. A jeopardy or termination assessment can only be made by the Service if collection is determined to be in jeopardy because at least one of the following conditions exists:

    1. The taxpayer is, or appears to be designing quickly to depart from the United States, or to conceal himself or herself.

    2. The taxpayer is, or appears to be designing quickly to place himself or herself, or property beyond the reach of the government either by removing it from the United States, by concealing it, by dissipating it, or transferring it to other persons.

    3. The taxpayer's financial solvency is or appears to be imperiled. This does not include cases where the taxpayer becomes insolvent by virtue of the accrual of the proposed assessment of tax, penalty, and interest.

    4. An individual is in physical possession of cash, or its equivalent, in excess of $10,000 and does not claim such cash, or as belonging to another person whose identity can be readily ascertained and who acknowledges ownership of such cash, so that the collection of tax on such cash is presumed to be in jeopardy within the meaning of IRC 6867, Presumptions Where Owner of Large Amounts of Cash is Not Identified.

  3. See IRM 1.2.13.1.27, Policy Statement 4-88, and IRM 1.2.13.1.28, Policy Statement 4-89.

Receiving Information

  1. An employee can receive information from many sources, inside and outside the U.S. Government. The employee should try to obtain the necessary information and contact the Exam Coordinator.

  2. When an employee receives, from any source, information indicating that a jeopardy/termination situation may exist, the following information should be obtained, if applicable:

    1. Name, including any aliases.

    2. Date of birth, if available.

    3. Address(es).

    4. TIN (generally, a SSN or EIN).

    5. Arrest record.

    6. Filing history (secure AMDISAs, IDRS transcripts, or similar documents such as BMFOLs or IMFOLs, for the last three years).

  3. If a referral for a jeopardy/termination assessment is received from another organizational unit of the Service, the Treasury Department, or Justice Department, the referral will be transmitted to the Field Territory Manager who will ascertain the status of the case. If the information shown on the referral is too general and vague to support a jeopardy/termination assessment, the referral will be assigned to an examiner to develop, as expeditiously as possible, the facts necessary for approval or disapproval. Any such oral referral received must be confirmed in writing prior to referral to the Area Director.

  4. The employee receiving the information indicating a possible jeopardy/termination situation, with group manager approval, will contact the Exam Coordinator.

Assignment of Cases

  1. An examiner will be assigned to prepare the jeopardy/termination case.

Examiner Responsibilities

  1. The following sections address examiner responsibilities and give detailed instructions. Examiner responsibilities include the following:

    1. Documenting evidence concerning the conditions making a jeopardy/termination assessment applicable.

    2. Developing the facts to support the jeopardy/termination.

    3. Preparing the report for assessment of the jeopardy/termination.

    4. Preparing the package for approval by the Area Director.

    5. If third party contacts are made, see IRM 4.16.1.4.5, Third Party Contacts.

Documenting Conditions
  1. Evidence of meeting conditions for a jeopardy/termination assessment should be developed and documented to the maximum extent. Include indications that collection of tax will be endangered if regular assessment and collection procedures are followed. Include information regarding the taxpayer’s financial condition. All evidence and information should be available for review to determine if the jeopardy/termination is proper under the circumstances.

  2. Flight, concealment/transfer of assets, and insolvency should be considered in establishing whether any of the conditions exist for making a jeopardy/termination assessment. Factors listed below, although not all inclusive, should be explored to the extent practicable.

    Note:

    One of the conditions listed in IRM 4.15.2.3 (2) must be present.

Flight
  1. Factors establishing flight include the following considerations:

    1. Is there evidence which would indicate that, if the taxpayer were free on bond, they would flee the United States or conceal himself or herself?

    2. What is the taxpayer’s citizenship status? A resident alien? A non-resident alien temporarily in the United States? An illegal alien? If the taxpayer is an alien legally in the United States, would their conviction on a specific offense result in their deportation?

    3. Does the taxpayer have a passport? If so, is it in their name or the name of an alias?

    4. Does the taxpayer have any previous convictions for offenses that would indicate they would flee?

    5. Is the taxpayer wanted by the police as a fugitive from another jurisdiction?

    6. Is there any indication that the taxpayer was about to leave the country, such as airline tickets seized from their possession at the time of arrest?

Transfer/Concealment of Assets
  1. Factors establishing concealment/transfer of assets include the following considerations:

    1. Does the taxpayer own any fixed assets, or deal solely in cash?

    2. If the taxpayer drives a car, is the car registered in their name or are they using a nominee?

    3. What are the circumstances concerning the taxpayer’s residence? Is the title in their name, or the name of a nominee? If the taxpayer leases, is the lease in their name, or that of a nominee?

    4. If the taxpayer was arrested with a large sum of money on their person, what are the circumstances concerning the money? Did the money belong to him or her, or to someone else?

    5. Has the taxpayer ever used an alias to conceal their identity?

    6. Was there an attempt by the taxpayer, at the time of their arrest, to destroy evidence?

Insolvency
  1. Financial solvency of the taxpayer must be threatened or there can be no jeopardy/termination.

  2. Factors establishing insolvency include the following considerations:

    1. Are there any balance due accounts open with respect to the taxpayer under their name, or any alias they may have used in the past?

    2. Did a search of the local court records, or other resources, reveal outstanding judgements against the taxpayer?

    3. Has the taxpayer ever filed for bankruptcy?

Developing the Facts
  1. The examiner should establish, as thoroughly and sufficiently as circumstances permit, a reasonable belief that income has been earned, a tax is or will become due, and the tax will not be collected unless immediate action is taken.

  2. Exclude unlawful wiretap evidence entirely and other tainted (Grand Jury) or illegally obtained evidence if possible. Consult Counsel if there are doubts as to legality.

  3. When possible, and applicable, the examiner should interview the taxpayer, the arresting officer(s), and other knowledgeable persons such as associates, employers, etc.

    Caution:

    Examiners must exercise caution before interviewing the taxpayer. The government’s position could be impeded if the taxpayer has knowledge of a possible termination or jeopardy assessment.

    Note:

    If the case has fraud potential, or if the taxpayer is interviewed while in custody, the examiner should not interview the taxpayer without the presence of a special agent. The special agent will advise the taxpayer of their constitutional rights.

Taxpayer Interview
  1. Interview the taxpayer to afford the taxpayer an opportunity to explain their situation and to obtain as much information as possible about the taxpayer. The interview should cover, at a minimum, the following:

    1. Taxpayer’s name, address, TIN, and telephone number.

    2. Sources of taxable income.

    3. Taxpayer’s assets (date purchased and cost).

    4. Extent of taxpayer’s liabilities.

    5. Sources of non-taxable income.

    6. Gifts and/or loans made by the taxpayer.

    7. Personal living expenses of the taxpayer (rent, food, etc.).

    8. Amount of money or other assets seized.

    9. Dependents, marital status.

    10. Date of birth.

    11. Education.

Arresting Officer Interview
  1. Interview the arresting officer(s) to obtain the following information:

    1. Specific charges giving rise to the arrest.

    2. Copy of the arrest report, warrant, and all other records seized by the police.

    3. Detailed facts with respect to the money and other assets seized and whether any other party is claiming ownership of the assets seized.

    4. Probability of the taxpayer leaving the country.

    5. How long the assets will be held by the arresting agency. (Who has possession, telephone number, contact address, etc.)

    Note:

    The examiner should leave their name and telephone number and request to be notified if anyone files a claim for the seized assets.

Interview of Others
  1. Interview other knowledgeable persons to develop the facts to determine if a jeopardy/termination exists. Such persons include the following:

    1. Narcotics agents,

    2. Business associates,

    3. Coworkers,

    4. Employers,

    5. Any other individuals who may have information about the taxpayer or can assist in developing the case.

Documenting the Facts
  1. Income from illegal activities, such as narcotics or gambling, should be evidenced by documents. It should also be supported by a professional opinion of a law enforcement officer or other expert with knowledge of the taxpayer’s activity.

  2. The underlying taxable income must be determined in a reasonable manner which does not produce an arbitrary, capricious, or excessive amount under the particular circumstances. The facts must be developed to support the determination that the taxpayer received income as well as the periods when the income was received.

    1. Income Activity—The taxpayer must be involved in an income producing activity. The specific facts must be developed and recorded to support that income was received by the taxpayer.

      Example:

      In Rinieri v. Scanlon, 254 F. Supp. 469 (S.D. N.Y. 1966), a revenue agent testified that his only information was that Rinieri, a French citizen, possessed said cash, that it was believed it came from the sale of narcotics, and that he used a cost of living figure of $53,100 in order to produce a tax liability of about the sum of the seized cash. The court granted summary judgement for the taxpayer in his refund suit, noting the government lacked proof of earnings within the United States, even some four years later. It brushed aside any presumptive evidence of jeopardy with the observation there can be no jeopardy if no taxes are due. The court concluded the government "acted in a fashion which can only be described as arbitrary, capricious, and unconscionable."

    2. Period(s) Involved—The specific facts must be developed and recorded to support that income was received over the period(s) determined. There should be a rational connection between facts known or ascertained and facts presumed or inferred.

      Example:

      In Pizzarello v. United States, 408 F.2d 579 (2nd Cir. 1969), the court concluded that an assessment of some $282,000 in wagering taxes was excessive, arbitrary, and without factual foundation. The amount was determined by projecting the average of wagers received during a 3 day period, over a 5 year period. The government failed to establish that the taxpayer engaged in gambling during the entire 5 year period or that the 3 day average represented average daily business for any other days.

      Example:

      In the refund case of O’Neill v. United States, 198 F. Supp. 367 (E.D. N.Y. 1961), the wagering excise tax for a 16 month period was determined by reference to seized betting slips covering all betting activities during the last month of the period. The agents believed the last month to be the most representative. At trial the fact that the taxpayer engaged in the wagering business throughout the 16 month period was established under collateral estoppel by reference to his conviction, and no evidence controverting the government’s figures was offered.

    3. Burden of Proof—The government has the burden of proving that making the jeopardy/termination assessment was reasonable under the circumstances (that is, whether or not assessment or collection was in jeopardy). The taxpayer has the burden of proving that the amount assessed was inappropriate under the circumstances.

  3. The tax history of the taxpayer should be verified. Determine if returns for prior years were filed, if there are estimated tax payments or withholding for prior years or the current year, whether the taxpayer under-reported for prior years, and if the taxpayer is current or delinquent in tax obligations. Place the information and analysis in the jeopardy/termination file. Include the following:

    1. AMDISAs for the last three years to determine if any years are under examination;

    2. Transcripts for the last three years to reveal the filing history of the taxpayer (BMFOLs and IMFOLs can be used in place of transcripts); and

    3. BRTVUs and RTVUEs for the last three years to uncover types of businesses, income, expenses, deductions, types of returns filed, etc., by the taxpayer.

  4. Case files recommending jeopardy/termination assessments should contain the following information to the extent practicable:

    1. Name, address, and TIN of the taxpayer.

    2. A complete computation of taxable income with all necessary supporting schedules and computations.

    3. Tax and penalty to be assessed by year, quarter, or period.

    4. The nature of the taxpayer’s business or activity.

    5. The taxpayer’s present financial condition.

    6. Information regarding the taxpayer’s activity giving rise to the jeopardy/termination.

    7. Records with respect to continuing business or personal losses.

    8. The taxpayer’s record for resisting payment of taxes in the past, if known.

    9. The nature and location of the taxpayer’s assets and the source of income.

    10. Identity and location of any retirement plan in which the taxpayer participates and in which benefits may be immediately available.

    11. The taxpayer’s filing record.

    12. Any other information having a bearing on the taxpayer’s financial condition, future prospects for losses, etc.

    Note:

    Managerial approval is required (in writing) and must be documented for penalties asserted under IRC 6751, Procedural requirements. Please see IRM 4.10.8.3.1, Individual and Corporate Cases, and IRM 20.1.5.1.4, Managerial Approval of Penalties, for more information on the requirements needed to assess penalties.

Preparing the Pre-Approval Report
  1. A pre-approval report will be prepared by the examiner. The pre-approval report will consist of the following:

    1. Pattern letter,

    2. Tax computation,

    3. Narrative,

    4. Copy of return,

    5. Other information.

  2. The Exam Coordinator will review the pre-approval report.

    1. If the Exam Coordinator agrees with the report, the examiner will deliver, or send electronically encrypted, the report to the Technical Services staff for review.

    2. If Technical Services concurs, the examiner and/or Technical Services reviewer will deliver, or send electronically, the report to Counsel for review.

    3. If Counsel concurs, the pre-approval report will be returned to the examiner for preparation of the approval report.

    4. If the Exam Coordinator, Technical Services, or Counsel does not agree with the pre-approval report, the examiner will make the necessary corrections, and resubmit the package for agreement.

  3. If the jeopardy/termination is determined not to exist, a memorandum to the file should be prepared documenting the reasons for discontinuance. The file, with the memorandum to file, will be returned to the coordinator for record keeping.

  4. The Exam Coordinator will notify CCP that an assessment is coming prior to the acceptance of the pre-approval report. The Exam Coordinator will send a draft copy of Form 5344, Examination Closing Record, Form 2644, Recommendation for Jeopardy/Termination Assessment, and Form 4549, Income Tax Examination Changes to CCP after the pre-approval report is approved.

  5. If the pre-approval report is accepted, an approval report will be prepared. The approval report is part of the package that is submitted for the Area Director’s approval of the jeopardy/termination assessment.

Pattern Letter
  1. The pattern letter is addressed to the taxpayer at their last known address.

    If the assessment is....... Then use
    A termination, Letter 1583 (Exhibit 4.15.2-1).
    A jeopardy, Letter 1584 (Exhibit 4.15.2-2).
    A termination possessor of cash, Letter 1929 (Exhibit 4.15.2-3). Following the name line in the address, insert another line: "As Possessor of Certain Cash."
    A jeopardy possessor of cash, Letter 1930 (Exhibit 4.15.2-4). Following the name line in the address, insert another line: "As Possessor of Certain Cash."
Tax Computation
  1. The basis on which the taxable income is computed will be stated. Examples are source and application of funds, net worth computation, specific identification, etc. All known assets, liabilities, income, and expenses will be considered. Assets held under IRC 401(a), Requirements for Qualification (of Retirement Plans), will not be considered unless such amounts are available to the taxpayer. See Exhibit 4.15.2-5, for examples of income computations.

    1. Expenses—A reasonable estimate of expenses will be made if the facts support the estimate. For example, if the taxpayer is in a business where cost of goods sold (COGS) is involved, a reasonable estimate must be made for COGS.

    2. Deductions/Credits—The standard deduction, exemptions, and credits, without proration, are allowed.

    3. Taxes—Self-employment tax, alternative minimum tax, additions to tax for early distributions from certain retirement plans, prohibited transaction excise tax, etc., if applicable, will be asserted.

    4. Possessor of Cash—For assessment purposes, cash or cash equivalent, as defined in IRC 6867(d), Definitions will be treated as taxable income and taxed at the highest rate of tax specified in IRC 1, Tax Imposed.

      Note:

      Usually Form 4549-A, Income Tax Examination Changes (Unagreed and Excepted Agreed), or a similar report, is prepared. Attached to the Form 4549-A are schedules detailing tax computations, such as self-employment tax and alternative minimum tax, other schedules showing the computation of penalties, and a schedule showing the interest computation. Include any other necessary schedules such as a net worth computation, if used.

Narrative
  1. Prepare a narrative explaining the facts, circumstances, and reason for the assessment. See Exhibit 4.15.2-6.

Copy of Return
  1. A copy of the return or SFR is included in the report. If the return has not been filed, follow SFR procedures and process the original to establish the taxpayer on MF or NMF so an assessment can be made.

  2. For a jeopardy assessment, if a return has been filed, include a copy. If a return has not been filed, follow SFR procedures. Identify the original SFR as a jeopardy SFR. Process the original using Form 3198, Special Handling Notice for Examination Case Processing. Keep a copy of the SFR for the report.

  3. For a termination assessment, follow SFR procedures. Identify the original SFR as a termination SFR. Process the original using Form 3198. Keep a copy for the report. (An SFR may also be necessary for the full year return if the taxpayer fails to file in termination follow-up action.)

  4. For a possessor of cash (either a jeopardy or termination), create a new taxable entity (dummy file) for the individual who is in physical possession of the cash. All documents requiring entity information must use "(possessor’s name) as possessor of certain cash" as the name line. Follow SFR procedures and process the original using Form 3198. Keep a copy of the SFR for the report.

    1. A temporary TIN must be obtained for all assessments made under IRC 6867, Presumptions Where Owner of Large Amount of Cash is Not Identified, irrespective of information indicating the possessor’s personal TIN. The use of the temporary TIN enables separate tax liability treatment for the possessed cash and avoids any effect on the possessor’s personal individual tax liability, which remains separate from the IRC 6867 assessment. Contact Case Processing Support to inform them that a possessor of cash jeopardy/termination assessment is in process and to obtain the temporary TIN.

    2. Jeopardy—A jeopardy possessor of cash entity is established on MF.

    3. Termination—A termination possessor of cash entity is established on NMF.

Other Information
  1. Include any notes, memorandums of interview, copies of taxpayer’s books and records, records of filing history, copies of arrest reports, documentation of assets, financial statements, or any other records that were obtained or used to develop the case.

Approval Report
  1. After the pre-approval report has been accepted, the examiner will prepare the approval report. The approval report is part of the package to be submitted to the Area Director and Counsel for approval of the jeopardy/termination assessment. The approval package contains five files for a jeopardy/termination assessment. See Exhibit 4.15.2-7, for contents of the approval package.

  2. The approval report will consist of the following items:

    1. Form 2644, Recommendation for Jeopardy/Termination Assessment—A separate Form 2644, in triplicate, will be prepared for each taxpayer in cases involving transferor-transferee liability or assessment of trust fund recovery penalty (TFRP) as provided in IRC 6672, Failure to Collect and Pay Over Tax, or Attempt to Evade or Defeat Tax. For possessor of cash assessments, the taxpayer’s name will include the words "as Possessor of Certain Cash" following the taxpayer’s name.

    2. Form 2645, List of Property Belonging to Taxpayer—Must list all property of which the examiner has knowledge. It provides Examination and Collection with any information on property or distrainable assets belonging to the taxpayer.

    3. Form 3198, Special Handling Notice for Examination Case Processing—Under "Expedite Processing" , on the first page, check block "Other" and insert:
      For a jeopardy:"Jeopardy assessment of __tax." Include the type of tax, income or other (whichever type is applicable).
      For a termination:"Termination assessment of income tax."
      Under "Forward to Technical Services" check the boxes for "Jeopardy or Termination" and "Other" and in the section after "Other" —document the following:
      For a jeopardy:"Jeopardy Assessment"
      For a termination:"Do not make refund or post full year return."
      For a possessor of cash:"This is an assessment made under provisions of IRC 6867, Presumptions Where Owner of Large Amount of Cash is Not Identified. Do not merge account for (insert possessor’s name)."

    4. Form 4135, Criminal Investigation Control Notice—This form places a TC 914 on MF to prevent the posting of the full year return, and is prepared for terminations and possessor of cash only. Place an "X" in the Box "TC 914."
      For a termination: Under Remarks found on page 2, indicate "This is a termination assessment of income tax. Do not post full year return. Send any returns received to Field Territory Manager, __Area."
      For a possessor of cash: (either a jeopardy or termination)—Under remarks, indicate "This is a jeopardy/termination (choose one) assessment under the provisions of IRC 6867. Do not merge account for (insert Possessor’s Name) as Possessor of Certain Cash with taxpayer’s personal account" . See IRM 4.15.2.5.6, for more information on possessor of cash.

    5. Form 5345-D, Examination Request-ERCS (Examination Returns Control System) Users, is prepared for terminations only. Item 1 should reflect Source Code 60 (to requisition the full-period return for follow-up action). Item 17, "Reason for Request/Related Return" will be completed by the Exam Coordinator for year-end follow-up action.

    6. Form 5346, Examination Information Report, is prepared for terminations only. Enter in "Information Obtained," the following "Termination of taxable period."

    7. Form 11661, Fraud Development Recommendation-Examination. This form is used in cases where the civil fraud penalty is proposed.

    8. Pattern letter—see IRM 4.15.2.4.1.3.1.

    9. Tax computation—see IRM 4.15.2.4.1.3.2.

    10. Narrative—see IRM 4.15.2.4.1.3.3.

    11. Copy of Return—see IRM 4.15.2.4.1.3.4.

    12. Other Information—see IRM 4.15.2.4.1.3.5.

    13. Counsel Memo.

    14. Form 4549, Income Tax Examination Changes.

    15. Form 5344, Examination Closing Record.

    16. Compliance Evaluation and other supporting lead sheets.

Securing Approval of the Report
  1. The Exam Coordinator will deliver the complete package, or send electronically encrypted, relating to the proposed jeopardy/termination assessment to the officials listed below, for concurrence or comment, prior to referral to the Area Director.

    Note:

    The signatures should be secured and forwarded to CCP by 9:00 a.m. central standard time (CST). The assessment must be made within 24 hours after the jeopardy/termination assessment is approved by the Area Director. The information for the assessment needs to be forwarded to the campus from CCP prior to 10:00 a.m. CST. If the information is not forwarded prior to 10:00 a.m. CST, the assessment generally cannot be made that day.

  2. In an emergency situation, the assessment can be made through other campuses in a different time zone.

    Example:

    A jeopardy assessment was made on several related corporations involving three years of corporate income taxes and related payroll taxes for each of the quarters of the three years. Due to the volume, the original campus was unable to assess all the amounts in time. A campus in a later time zone can be contacted to assess the remaining amounts, within the same day the jeopardy assessment is approved.

  3. Function officials listed below must approve the complete package prior to securing approval from the Area Director. Approval should be in the order shown below:

    1. Exam Group Manager;

    2. Exam Territory Manager;

    3. Collections Group Manager;

    4. Collections Territory Manager;

    5. Special Agent in Charge, CI;

    6. Technical Services Group Manager;

    7. Technical Services Territory Manager; and

    8. Area Counsel.

      Note:

      Counsel must sign last, except for the Area Director. Otherwise, review by other officials may be perfunctory or influenced by the fact Counsel has already approved. Each review should be meaningful.

  4. If any official does not approve, the examiner will make the necessary corrections, and resubmit the package for approval.

  5. If any official does not approve, and agreement cannot be reached between the officials, the controversy will be resolved through existing management channels.

  6. After approval is secured from the function officials, the Exam Coordinator will deliver the complete package, or send electronically encrypted, to the Area Director for approval.

    If the Area Director... Then
    Approves the package, The Area Director or other delegated official will sign each Form 2644 in the appropriate area and sign each of the appropriate pattern letters in hard copy or electronic copy.
    Instructs the package be re-submitted with corrections, The examiner will make the necessary corrections and resubmit the package for approval through the approval chain (all officials need to approve the corrected package).
    Does not approve the package, The examiner will prepare a memorandum to the file documenting the reasons for disagreement. The original file, with the memorandum, will be returned to the coordinator for record keeping.
Processing After Approval
  1. The Exam Coordinator will coordinate with CCP and Collection after the Area Director has approved the jeopardy/termination. The Exam Coordinator will forward the appropriate files to the remaining business units as identified in Exhibit 4.15.2-7.

    1. Delivery to CCP—The Exam Coordinator will EEfax the Form 2644, Recommendation for Jeopardy/Termination Assessment to CCP. The Exam Coordinator will provide their name and telephone number. After the assessment is made, CCP will return to the Exam Coordinator an electronic copy of Form 2644 with the DLN and 23C data. The Exam Coordinator will enter the DLN and 23C data on the remaining Forms 2644.

    2. Delivery to Collection—The Exam Coordinator will deliver or send by secured e-mail the collection file to the Collection Revenue Officer. Generally, the Exam Coordinator will contact the local Collection Manager and request a Revenue Officer be assigned to the case. Collection will make provisions for delivery of the collection file to the collection group manager of the applicable geographic area. Please see IRM 5.1.4.3.4, Assessment and Post Assessment Procedures. The Technical Services Reviewer will secure the Technical Services Group Manager signature on three copies of the Pattern Letter with the current date. The Technical Services Reviewer will deliver two originals of the Pattern Letter to Collection. Collection will make provisions for serving the “Written Statement” consisting of the Pattern Letter, Tax Computation, and Narrative, along with the Notice and Demand to Pay Tax within 5 calendar days of the 23C date. The Technical Services Reviewer will send the Pattern Letter, Narrative, and Tax Computation to the taxpayer(s) via certified mail within 5 calendar days of the 23C date. Technical Services will suspend and hold the case file for 35 calendar days after the 23C date to allow time for the taxpayer(s) to request an administrative review.

    3. Forwarding to Other Functions—The Exam Coordinator will forward the remaining respective files to Technical Services, and Cl. See Exhibit 4.15.2-7 for contents of each file and distribution of the approval package.

Post Assessment Procedures

  1. This subsection contains information and guidance for the processing of jeopardy/termination assessment cases after the assessment has been made.

Notice of Deficiency

  1. The Exam Coordinator will ensure that an examination is completed in order for a notice of deficiency to be issued, as required by the jeopardy/termination provisions. The examination file, which includes the jeopardy/termination assessment file, is completed and assembled according to case file assembly procedures. The completed case will be forwarded to Technical Services for issuance of the required notice of deficiency.

  2. If a full year return is not filed or accepted, a notice of deficiency is required to be mailed to the last known address of the taxpayer.

  3. Exam Technical Services is responsible for issuing the notices of deficiency in jeopardy/termination assessments, except in cases pending in Appeals. All notices of deficiency prepared in jeopardy/termination cases will be reviewed by Counsel before issuance.

  4. Jeopardy—A notice of deficiency is required to be mailed to the last known address of the taxpayer within 60 calendar days of the date of the assessment. See IRM 4.8.9.17.3.1, Jeopardy Notice of Deficiency, and IRM 4.8.8.7.1.3, Preparing Notices of Deficiency, for more information. An examination of the taxpayer, preparation of the notice of deficiency, and review of the notice by Counsel, will be completed within the 60 day period.

  5. Termination—A notice of deficiency is required to be mailed to the last known address of the taxpayer, for the taxpayer’s full taxable year, within 60 calendar days after the later of the following:

    1. The due date of the taxpayer’s return for the taxable year, including extensions; or

    2. The date the taxpayer files a return for the taxable year if the taxpayer files a return by the due date, including extensions. However, if the taxpayer does not file a return, the notice of deficiency must be sent within 60 calendar days after the due date of the return, including extensions. See Perlowin v. Sassi, 711 F.2d 910, 912 (9th Cir. 1983) and Ramirez v. Commissioner, 87 T.C. 643, 648 n.2 (1986).

Termination Follow-Up

  1. Termination assessment provisions require the taxpayer who is subject to a termination assessment to file a full year return, and the Service to issue a notice of deficiency to the taxpayer with respect to that full year return. Generally, the notice of deficiency should be issued within 60 calendar days of the due date of the return including extensions. Controls must be established to follow through on termination assessments. For Terminations, Exam is responsible for establishing/requesting NMF controls and to determine whether or not the taxpayer files a full year’s return and the location of the filing for termination assessments.

Termination Assessments - Filing Requirements by the Taxpayer
  1. IRC 6091(b), Tax Returns, and Treas. Reg. 1.6091–2 require persons to file their full taxable year returns with the Area Director, as prescribed by the regulations.

  2. Where persons subject to a termination assessment are required to file their full taxable year returns depends on whether the taxpayer is an individual or a corporation. Such place of filing is prescribed to provide early receipt and time for necessary examination and issuance of the notice of deficiency within the 60 day period required by IRC 6851(b), Notice of Deficiency.

    1. Taxpayers other than corporations are directed to file their full taxable year returns with the Area Director, as prescribed by the regulations, where the taxpayer residence or principal place of business is located.

    2. Corporate taxpayers are directed to file their full taxable year returns with the Area Director, as prescribed by the regulations, where the principal office or agency of the corporation is located.

  3. If a taxpayer does not comply with the filing directions (files their full year's return with a Campus or Area Director not specified), the return is not deemed filed within the meaning of IRC 6851(b). The return is deemed filed once the proper Area Director secures the return. Thus, the statutory notice of deficiency must be mailed within 60 calendar days after the later of the date the proper Area Director secures the return (i.e., the filing date) or the due date of the return for the taxable year; including extensions.

Examination of Full-Year Return
  1. An examination of the full year return is required in order to determine the correct tax liability and issue a notice of deficiency, whether the taxpayer filed a full year return or failed to file a return. The examination should be completed in time for the preparation, review, and issuance of the notice of deficiency within the required 60 calendar day period.

    1. Filed Return — Upon filing of the full year return by the taxpayer subject to a termination assessment, an examination for the entire year should be initiated.

    2. Nonfiled Return — If the taxpayer fails to file by the due date of the return, an examination for the entire year should be initiated. If a return is not secured, follow SFR procedures. See IRM 4.12.1, Nonfiled Returns.

  2. Payments that have been posted to the taxpayer’s NMF account must be transferred to the MF account once the full year return is processed. For more information, see IRM 4.4.3.4, Transferring NMF Credits to MF Deficiency.

Request for Review

  1. If the taxpayer, who is subject of the jeopardy/termination assessment, files a request for an administrative review, the Exam Coordinator will forward the request to Technical Services. The request is made by the taxpayer after the assessment is made.

Administrative and Judicial Reviews

  1. This IRM subsection discusses IRC 7429, Review of Jeopardy Levy or Assessment Procedures, which provides for administrative and judicial review of jeopardy and termination assessments. Jeopardy/termination assessments under IRC 6867, Presumptions Where Owner of Large Amount of Cash is Not Identified, are not entitled to administrative and judicial review under IRC 7429.

Administrative Reviews
  1. A taxpayer may request an administrative review of a jeopardy/termination assessment. Administrative review is a prerequisite to later judicial review. See Machado v. United States, 80-1 USTC (CCH) ¶ 9323 (S.D. N.Y. 1980). Generally, the Service has 15 calendar days to respond to a request for administrative review.

Written Statement to Taxpayer
  1. IRC 7429(a)(1), Administrative Review, requires that the Service provide a written statement to the taxpayer. This statement includes the information used to prepare the jeopardy/termination assessment and must be provided to the taxpayer within five calendar days of making the assessment. See IRM 5.1.4.3.4, Assessment and Post Assessment Procedures.

  2. The following items make up the written statement:

    1. Pattern letters. These letters provide the amount of the tax and directs the taxpayer to the attached computation to show how the tax was determined. They cite the applicable code section, provide the computation of tax, and notify the taxpayer of his/her right of appeal and the right of review under IRC 7429. If applicable, taxpayers are notified of the right to appeal under IRC 6330, Notice and Opportunity for Hearing Before Levy. See paragraph 3 for the types of pattern letters.

    2. Tax computation.

    3. Narrative.

  3. Examples of pattern letters are available as provided in the following table. These examples offer language for use in developing case-specific correspondence as required by IRC 7429(a)(1)(B), Information to Taxpayer.

    Reference Location
    Pattern Letter 1583 Exhibit 4.15.2-1
    Pattern Letter 1584 Exhibit 4.15.2-2
    Pattern Letter 1929 Exhibit 4.15.2-3
    Pattern Letter 1930 Exhibit 4.15.2-4
Notice & Demand to Pay Tax
  1. IRC 6851, Termination Assessments of Income Tax, IRC 6861, Jeopardy Assessments of Income, Estate, Gift, and Certain Excise Taxes, and IRC 6862, Jeopardy Assessment of Taxes Other Than Income, Estate, Gift, and Certain Excise Taxes, require the Service to present immediately, to the taxpayer, a notice and demand to pay tax. Generally, Form 3552, Prompt Assessment Billing Assembly, is used for notice and demand. Form 3552 is prepared by Collection with certain modifications. If Form 3552 is not available, copy the text of one on IRS letterhead stationery.

Request for Administrative Review
  1. A taxpayer may file a request for review of the assessment action, in writing, generally within 30 calendar days of the date of the assessment. This written request must be sent to the Area Director per the Pattern Letter issued as part of the written statement to the taxpayer.

  2. Under IRC 7429(a)(2), a taxpayer may request an administrative review of the assessment action within 30 calendar days, after:

    1. The day the taxpayer is provided the Notice of Assessment and Right of Appeal; or

    2. The last day of the period the Notice is required to be furnished to the taxpayer (35 calendar days after the assessment if the notice is not timely delivered).

      Note:

      IRC 6851, IRC 6861, and IRC 6862 require the Service to immediately present to the taxpayer a notice and demand to pay tax.

  3. The request will be forwarded to the Examination Jeopardy/Termination Coordinator (coordinator) identified in IRM 4.15.2.2. The coordinator will forward the request to the Technical Services Manager. The coordinator will keep a copy of the request for his/her file.

  4. The Jeopardy/Termination Coordinator will notify Technical Services that an administrative review was initiated by the taxpayer. Technical Services will promptly notify Appeals of any request for review filed by the taxpayer upon receipt. The entire file, including the request for administrative appeal, should be gathered and transmitted to Appeals.

    Note:

    The Technical Services Jeopardy/Termination Coordinator has overall responsibility for liaison between the operating divisions, Criminal Investigation (CI), Appeals and Counsel. Responsible Service employees must keep Technical Services informed of the status of the case. The Technical Services Manager's responsibility is to review the tax computation and ensure proper procedures are followed. The responsibility for taking necessary actions on any case remains with the organization having jurisdiction for taking the required actions.

Redetermination by the Secretary
  1. Under IRC 7429(a)(3), Redetermination by Secretary, Appeals considers the taxpayer's request for administrative review. When feasible, Appeals grants an immediate conference and within 15 calendar days after the request is received by the Service, determines whether:

    1. The making of the assessment is reasonable under the circumstances; and

    2. The amount assessed is appropriate.

  2. A determination is made by the Appeals Officer based on the taxpayer's written request and additional information furnished.

  3. If a taxpayer files a civil suit at any time prior to the conclusion of the administrative appeals, Appeals procedures will be suspended.

  4. Appeals consideration results in one of the following actions:

    1. Assessment sustained in full (the action and the amount of tax are correct);

    2. Assessment sustained in part (the amount of tax assessed is redetermined);

    3. Assessment is not reasonable or warranted (for example, collection of tax is not in jeopardy); or

    4. Taxpayer agreement to the assessment and the amount assessed in full or in part.

  5. Exam will take the appropriate action depending upon whether the taxpayer agrees or disagrees with Appeals' determination.

    1. If the taxpayer agrees with the Appeals determination, the taxpayer will be requested to pay the tax. The Area Director will be notified to abate any excessive tax assessed as determined by Appeals.

    2. If it is determined that the action was not warranted, the Area Director will be notified by Appeals to abate all of the tax assessed, release liens and levies as necessary and process refunds or credits as necessary.

    3. If the taxpayer does not agree with the Appeals determination, the taxpayer will be informed of his/her right for judicial review.

  6. The file will be returned, including any Appeals reports and transmittal memorandums, to Technical Services.

Judicial Reviews
  1. Under IRC 7429(b)(1), Proceedings Permitted, a taxpayer may request a judicial review of the assessment action within 90 calendar days after the earlier of:

    1. The day the Service notifies the taxpayer of the determination of the administrative appeal; or

    2. The 16th day after a request for review was made.

  2. Administrative review procedures and court proceedings initiated by the taxpayer will be monitored by:

    • Technical Services; and

    • The Exam Coordinator.

  3. The Jeopardy/Termination Coordinator will notify Counsel of any court proceedings commenced by the taxpayer. The entire file, including the request for administrative appeal and information developed in reviews, should be gathered and transmitted to Counsel within two working days.

Judicial Determination
  1. Under IRC 7429(b)(3), Determination by Court, the court considers the taxpayer’s request for judicial review within 20 calendar days after a proceeding is commenced to determine whether:

    1. The making of the assessment is reasonable under the circumstances; and

    2. The amount assessed is appropriate.

  2. The court makes a determination based upon all the facts known at the time of the review. The facts are not limited to facts known at the time the assessment was made.

  3. If the taxpayer requests an extension of the 20 day period and establishes reasonable grounds for the request under IRC 7429(c), Extension of 20-Day Period Where Taxpayer So Requests, the court may grant an extension of up to 40 additional calendar days.

  4. If the court determines that the taxpayer did not properly serve the United States within 5 calendar days after the taxpayer filed action, the commencement of the 20 day period may be postponed until proper service is made.

  5. Court review results in one of the following actions:

    1. Assessment is reasonable;

    2. Assessment is unreasonable; or

    3. Assessment amount is inappropriate.

  6. A determination made under IRC 7429 affects only the jeopardy/termination assessment.

Action by Examination
  1. During judicial review, there may be some determinations that the jeopardy/termination assessment has been improperly made or that the amount assessed was excessive. Appeals may determine the decrease in tax, penalty, and interest. The Area Director will be notified by Appeals to abate any excessive tax assessed, release any liens and levies and process refunds or credits.

  2. The file will be returned to Technical Services who will relay the results of the judicial determination to Exam or Collection; depending on where the case is open.

Finality of Judicial Determination
  1. Any determination made by a court under IRC 7429 is final and will not be reviewed by any other court.

Area Reviews
  1. The Area Director will ensure reviews are conducted of the jeopardy/termination assessments verifying that the area is complying with IRM procedures, IRM 1.2.13.1.27, Policy Statement 4–88, and IRM 1.2.13.1.28, Policy Statement 4-89.

Abatement Procedures

  1. During administrative or judicial review of the jeopardy/termination assessment action, there may be a determination that the assessment was improperly made or excessive in amount, or Appeals may overturn the assessment. If the Area Director believes a jeopardy/termination assessment is excessive in amount, or if it is shown to the satisfaction of the Area Director that a jeopardy situation does not exist, they may abate the assessment in whole or in part.

  2. An abatement of all or part of the tax should be supported by a statement of reasons, the report of findings, and a new computation of tax. Copies of the Area Director's, Appeals', or Counsel's statement of reasons, report of findings, and new computation of tax will be included in the file of any jeopardy/termination assessment.

  3. The jeopardy/termination assessment case file (including the statement of reasons, report of findings, and a new computation of tax) will be forwarded according to whether a judicial or administrative decision is made.

  4. Counsel will relay court orders to abate all or part of the tax to Technical Services.

  5. Appeals will relay Appeals decisions to abate all or a part of the tax to Technical Services.

  6. Other Decision — The Area Director's decision to abate all or part of the tax will be relayed to Technical Services.

  7. Technical Services will forward the following information:

    1. The case file to Technical Services Manager, for immediate processing of the abatement. Form 5344, Examination Closing Record, will be prepared to decrease tax, penalty, and interest for cases open in Exam. Form 3870, Request for Adjustment, will be used in other cases. See IRM 4.8.8.7.1.4, Abating Jeopardy/Termination Assessments, for instructions on abating jeopardy/termination assessment cases by Technical Services.

    2. The information to the Collection Territory Manager, to advise him/her of the redetermined liability, of any restrictions on the collection action which may be pursued, or of a final decision by the court which may permit sale of seized property. If a part of the assessment remains, collection action may be resumed for the balance due. If an excess collection has been made, the Campus should refund the excess. No refund will be made until the case is closed.

    3. A copy of the statement of reasons, report of findings, and a new computation of tax for granting an abatement, to the Examination Area Director and the Exam Coordinator for review.

Possessor of Cash

  1. If an individual comes forward and claims ownership of cash (or cash equivalent) related to an assessment per IRC 6867, Presumptions Where Owner of Large Amount of Cash is Not Identified, they should be advised to submit a written request to the Area Director marked for the attention of the Exam Coordinator. See IRM 4.8.8.7.1.3.3, Possessor of Cash Notice of Deficiency, for more information.

  2. The written request for return of the subject property should be signed under penalty of perjury. The request will contain the following information:

    1. The name, address, and SSN of the person submitting the request;

    2. A detailed description of the property levied upon, if other than cash; if cash, state the exact amount seized;

    3. A description of the claimant's basis for claiming the property levied upon as belonging to the claimant;

    4. The name and address of the "Possessor" of the cash or cash equivalent (the person who was originally found to be in possession of the cash and who denied its ownership and did not properly identify the true owner); and

    5. The originating operating division, the date of lien or levy as shown on Form 668–A, Notice of Levy, or Form 668–B, Levy, or in lieu thereof, a statement of the reasons why such information cannot be furnished.

  3. If the Exam Coordinator determines the written request is valid, the Exam Coordinator will refer the written request and computation of any changes to the original assessment. The Exam Coordinator will forward the assessment changes to Technical Services. Technical Services is responsible for abating any overassessment and refunding the overassessment to the claimant, if applicable. See IRM 4.15.2.5.5, for more information on abatement procedures. Exam will notify Technical Services of their determination so that Technical Services can arrange for disposition of any noncash items seized.

  4. The original assessment should be abated. If circumstances dictate, another assessment may be made on the individual that came forward and claimed the cash. The assessment, against the owner of the cash, that replaces the original assessment, will be treated as dating back to the date of the original assessment.

Pattern Letter 1583

Department of the Treasury
Internal Revenue Service
Letter 1583(P)
  Letter Date:
  Taxpayer Identification Number:
AREA DIRECTOR Form:
  Tax Year Ended and Deficiency:
  Person to Contact:
  Telephone Number:
  Employee Identification Number:
  Refer Reply to:
  Last Date to File for Administrative Review:
NOTICE OF TERMINATION ASSESSMENT OF INCOME TAX
Dear Taxpayer:  
Under section 6851 of the Internal Revenue Code (the Code), you are notified that I have found you are attempting to place your property beyond the reach of the Government by concealing it, thereby tending to impede the collection of income tax for the 2017 taxable year.
I have found that on December 25, 2017, you were arrested by the xxxx Police Department and charged with possession of illegal narcotics paraphernalia. At the time of your arrest, $239,222 in U.S. currency was seized, which you claimed to be yours. The xxxx Police Department tested the money for traces of narcotics, which proved to be positive.
A search of the Internal Revenue Service Campus records indicates that you have not filed a federal individual income tax return since 2013. Accordingly, the income tax, as set forth below, is due and payable immediately.
Taxable Period Tax
December 31, 2017 $83,626
Based on information available at this time, tax and penalty, if any, reflected in the attached computations, have been assessed.
This action does not relieve you of the responsibility for filing a return for your usual annual accounting period under section 6012 of the Code. Such return must be filed with the office of the Area Director of the area in which you reside, or the area in which your principal office is located, not with the Internal Revenue Service Campus. A copy of this letter should accompany the return so that any amount collected as a result of this termination assessment will be applied against the tax finally determined to be due on your annual return or to be credited or refunded.
Under section 7429 of the Code, you are entitled to request administrative and judicial reviews of this assessment action.
For an administrative review, you must file a written protest with the Area Director within 30 calendar days from the date of this letter, requesting a redetermination of whether or not: (1) the making of the assessment is reasonable under the circumstances, and (2) the amount so assessed or demanded as a result of the action is appropriate under the circumstances. When feasible, a conference will be held on an expedited basis by the Area Director of Appeals Office to consider your protest. If you submit information or documentation for the first time at an Appeals conference, the Appeals Office may request comment from the Area Director on such evidence or documents. As indicated above, enforced collection action may proceed during any administrative appeal process unless arrangements are made regarding collection of the amount assessed. To make such arrangements, please contact [INSERT NAME OF REVENUE OFFICER], Revenue Officer, at (nnn) nnn-nnnn. [INSERT PHONE NO.]
You may request a judicial review of this assessment by bringing a civil suit against the United States in the U.S. District Court in the judicial district in which you reside or in which your principal office is located. However, in order to have this action reviewed by the District Court, you must first request the administrative review explained above. A civil suit must be filed in writing within 90 calendar days after the earlier of: (1) the day the Service notifies you of its decision on your protest, or (2) the 16th day after your protest. The Court will make an early determination of the same points raised in your protest to determine whether the making of the assessment is reasonable under the circumstances and to determine whether the amount assessed or demanded as a result of the action is appropriate under the circumstances. The Court’s determination is final and not reviewable by any other court.
Under IRC Section 6330, you are entitled to request a Collection Due Process (CDP) hearing with the IRS Office of Appeals at which you may bring up issues in addition to whether our decision that collection is in jeopardy is reasonable. For this hearing, you must submit a request in writing to the Area Director within 30 calendar days from the date of this letter. See the enclosed Publication 594, Understanding the Collection Process; Publication 1660, Collection Appeal Rights; and Form 12153, Request for a CDP. The references to notice of intent to levy in these Publications and this Form do not apply, because such notice is not required when collection is in jeopardy. If you request a hearing under both provisions, we may handle both at one hearing.
If you have questions about this letter, you may call or write to the contact person identified on the front of this letter. You also have the right to contact the office of the Taxpayer Advocate. Taxpayer Advocate assistance is not a substitute for established IRS procedures, and it cannot reverse legally correct tax determinations nor extend the fixed time for you to request an administrative review or bring civil suit. The Taxpayer Advocate can, however, see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling. If you want Taxpayer Advocate assistance, call 1–800–nnn–nnnn.
Thank you for your cooperation.
   
  Sincerely,
   
  NAME OF AREA DIRECTOR
  Area Director
Enclosure:  
Computation  
Narrative  
   
Pattern Letter 1583  

Pattern Letter 1584

Department of the Treasury
Internal Revenue Service
Letter 1584(P)
  Letter Date:
  Taxpayer Identification Number:
AREA DIRECTOR Form:
  Tax Year Ended and Deficiency:
  Person to Contact:
  Telephone Number:
  Employee Identification Number:
  Refer Reply to:
  Last Date to File for Administrative Review:
NOTICE OF JEOPARDY ASSESSMENT AND RIGHT OF APPEAL
Dear Taxpayer:  
Under section 6861 of the Internal Revenue Code (the Code), you are notified that I have found that you were stopped on December 9, 2017, for a traffic violation. The officer searched your person and vehicle and discovered and seized $21,997. You told the officer the money was from a xxxx. At a later date, you told the Internal Revenue Service that approximately $17,000 of the amount seized was earned from xxxxx xxxx in your father’s xxxx business. You stated approximately $5,000 of the amount seized was given to you by your father to purchase gifts and to give to your father’s brother in xxxx.
You pled guilty to conspiracy to possess with intent to distribute cocaine and to distribute cocaine in 2018. The co-conspirators provided information to the FBI as to the amount of cocaine you supplied them on a weekly basis.
A search of public records, as well as your own statements, reveals the cash held by the XX Police is your only asset. A search of the Internal Revenue Service Campus records indicates that you have no filing history. The above stated facts thereby tend to jeopardize or prejudice or impede the collection of income tax for the periods of December 31, 2017 and December 31, 2018. Accordingly, based on information available at this time, I have approved assessment of tax and additional amounts determined to be due as reflected in the attached computations:
Taxable Period Tax Penalty Interest
December 31, 2017 $3,301 $ 963 $ 862
December 31, 2018 $4,958 $1,496 $ 692
Under section 7429 of the Code, you are entitled to request administrative and judicial reviews of this assessment action.
For an administrative review, you must file a written protest with the Area Director within 30 calendar days from the date of this letter, requesting a redetermination of whether or not: (1) the making of the assessment is reasonable under the circumstances, and (2) the amount so assessed or demanded as a result of the action is appropriate under the circumstances. When feasible, a conference will be held on an expedited basis by the Area Director of Appeals Office to consider your protest. If you submit information or documentation for the first time at an Appeals conference, the Appeals Office may request comment from the Area Director on such evidence or documents. Enforced collection action may proceed during any administrative appeal process unless arrangements are made regarding collection of the amount assessed. To make such arrangements, please contact [INSERT NAME OF REVENUE OFFICER], Revenue Officer, at (nnn) nnn–nnnn. [INSERT PHONE NO.]
You may request a judicial review of this assessment by bringing a civil suit against the United States in the U.S. District Court in the judicial district in which you reside or in which your principal office is located. However, in order to have this action reviewed by the District Court, you must first request the administrative review explained above. A civil suit must be filed in writing within 90 calendar days after the earlier of: (1) the day the Service notifies you of its decision on your protest, or (2) the 16th day after your protest. The Court will make an early determination of the same points raised in your protest to determine whether the making of the assessment is reasonable under the circumstances and to determine whether the amount assessed or demanded as a result of the action is appropriate under the circumstances. The Court’s determination is final and not reviewable by any other court.
Appeal to the Courts in Case of Income, Estate, Gift, and Certain Excise Taxes
If an agreement is not reached with the Internal Revenue Service, a notice of deficiency is required by law to be issued within 60 calendar days from the date of jeopardy assessment made under section 6861 of the Code. You then have 90 calendar days (150 days if outside the United States) from the date the notice is mailed to petition the United States Tax Court.
Appeal to Courts in Case of Other Taxes Assessed Under Section 6862 of the Code
Claim for credit or refund of taxes assessed under section 6862 of the Code may be filed in accordance with section 6511(a) of the Code for administrative and judicial review of the merits of the liability assessed. An administrative decision on the claim may be appealed to the courts under the provisions of section 7422(a) of the Code.
Under IRC Section 6330, you are entitled to request a Collection Due Process (CDP) hearing with the IRS Office of Appeals at which you may bring up issues in addition to whether our decision that collection is in jeopardy is reasonable. For this hearing, you must submit a request in writing to the Area Director within 30 calendar days from the date of this letter. See the enclosed Publication 594, Understanding the Collection Process; Publication 1660, Collection Appeal Rights; and Form 12153, Request for a CDP. The references to notice of intent to levy in these Publications and this Form do not apply, because such notice is not required when collection is in jeopardy. If you request a hearing under both provisions, we may handle both at one hearing.
If you have questions about this letter, you may call or write to the contact person identified on the front of this letter. You also have the right to contact the office of the Taxpayer Advocate. Taxpayer Advocate assistance is not a substitute for established IRS procedures, and it cannot reverse legally correct tax determinations nor extend the fixed time for you to request an administrative review or bring civil suit. The Taxpayer Advocate can, however, see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling. If you want Taxpayer Advocate assistance, call l–800–nnn–nnnn.
Thank you for your cooperation.
   
  Sincerely,
   
  NAME OF AREA DIRECTOR
  Area Director
Enclosure:  
Computation  
Narrative  
   
Pattern Letter 1584  

Pattern Letter 1929

Department of the Treasury
Internal Revenue Service
Letter 1929(P)
  Letter Date:
  Taxpayer Identification Number:
AREA DIRECTOR Form:
  Tax Year Ended and Deficiency:
  Person to Contact:
As Possessor of Certain Cash Telephone Number:
  Employee Identification Number:
  Refer Reply to:
NOTICE OF TERMINATION ASSESSMENT OF INCOME TAX UNDER IRC 6867
Dear Taxpayer:  
Under section 6851 and 6867 of the Internal Revenue Code (the Code), you are notified that I have found that the collection of income tax for the period ending December 31, 2017, is jeopardized or impeded for the following reasons.
On December 21, 2017, you were stopped and questioned by officers of the xxxx Police Department. At the time, it was determined you were under Grand Jury indictment in xxxx County for alleged narcotics violations. At the time of your arrest, $397,451 in U.S. currency was seized. You were questioned by xxxx Police as to the ownership of the U.S. currency, and the true owner cannot be readily ascertained. Therefore, a termination assessment is recommended against you as possessor of the unclaimed cash.
Accordingly, the following income tax is computed pursuant to section 6867(b) of the Code as shown in the attached computation and is due and payable immediately from the cash found in your physical possession on December 21, 2017.
Taxable Period Tax
December 31, 2017 $135,983
This notification of termination assessment required under sections 6851(a), 6867(b)(3), and 7429(a)(1) of the Code is being sent to you solely in your capacity as possessor of certain cash in the amount of $397,451 on December 21, 2017.
This action is independent of and has no effect upon your personal income tax liability for the calendar year 2017. Accordingly, you are not relieved of the responsibility for filing a return for your usual annual accounting period under section 6012 of the Code.
You are not entitled to request administrative and judicial reviews of this assessment action under section 7429 of the Code.
If you have questions about this letter, you may call or write to the contact person identified on the front of this letter. You also have the right to contact the office of the Taxpayer Advocate. Taxpayer Advocate assistance is not a substitute for established IRS procedures, and it cannot reverse legally correct tax determinations. The Taxpayer Advocate can, however, see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling. If you want Taxpayer Advocate assistance, call 1–800–nnn–nnnn.
Thank you for your cooperation.
   
  Sincerely,
   
  NAME OF AREA DIRECTOR
  Area Director
Enclosure:  
Computation  
Narrative  
   
Pattern Letter 1929  

Pattern Letter 1930

Department of the Treasury
Internal Revenue Service
Letter 1930(P)
  Letter Date:
  Taxpayer Identification Number:
AREA DIRECTOR Form:
  Tax Year Ended and Deficiency:
  Person to Contact:
As Possessor of Certain Cash Telephone Number:
  Employee Identification Number:
  Refer Reply to:
NOTICE OF JEOPARDY ASSESSMENT OF INCOME TAX UNDER IRC 6867
Dear Taxpayer:  
Under section 6861 and 6867 of the Internal Revenue Code (the Code), you are notified that I have found that the collection of income tax for the period ending December 31, 2017, is jeopardized or impeded for the following reasons.
On December 14, 2018, your residence was searched by officers of the xxxx Police Department. Seized by the xxxx Police Department were numerous guns, a safe, and $671 in U.S. currency. On December 15, 2018, the safe was opened by the xxxx Police and $1,576,000 in U.S. currency was found in the safe. On April 27, 2019, you were questioned by Revenue Agent, NAME, as to whom the cash in the safe belonged. You refused to make a statement, and the true owner cannot be readily ascertained at this time. Therefore, a jeopardy assessment is recommended against you as possessor of the unclaimed cash.
Accordingly, the following income tax is computed pursuant to section 6867(b) of the Code as shown in the attached computation and is due and payable immediately from the cash found in your physical possession on December 14, 2018.
Taxable Period ------- Tax-------- Penalty Interest
December 31, 2017 $603,231 $61,241 $2,953
This notification of jeopardy assessment required under sections 6861(a), 6867(b)(3), and 7429(a)(1) of the Code is being sent to you solely in your capacity as possessor of certain cash in the amount of $1,576,000 on December 14, 2018.
You are not entitled to request administrative and judicial reviews of this assessment action under section 7429 of the Code.
If you have questions about this letter, you may call or write to the contact person identified on the front of this letter. You also have the right to contact the office of the Taxpayer Advocate. Taxpayer Advocate assistance is not a substitute for established IRS procedures, and it cannot reverse legally correct tax determinations nor extend the fixed time for you to request an administrative review or bring civil suit. The Taxpayer Advocate can, however, see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling. If you want Taxpayer Advocate assistance, call 1–800–nnn–nnnn.
Thank you for your cooperation.
   
  Sincerely,
   
  NAME OF AREA DIRECTOR
  Area Director
Enclosure:  
Computation  
Narrative  
   
Pattern Letter 1930  

Examples of Income Computation

Example 1. NET WORTH AND EXPENDITURES METHOD:
    Cost of Drug Habit
The taxpayer was arrested for possession of narcotics on June 3, 2014. At the time of their arrest, they had in their possession $22,300 in cash, which is now in the possession of the Drug Enforcement Agency (DEA). From local narcotics authorities, it was learned that the taxpayer spends about $100 per day on their drug habit. The taxable income is computed as follows:
    Cash on hand when arrested   $ 22,300
    Cost of habit ($100/day x 155 days)   +15,500
    Adjusted Gross Income (AGI)   $ 37,800
    Standard deduction 3,800  
    Exemption 2,450 –6,250
    Taxable income   $31,550
Example 2. NET WORTH AND EXPENDITURES METHOD:
  Cost of Drugs + Cash Seized
The taxpayer was arrested on August 4, 2014, by a xxxx State police officer and was charged with violation of xxxx narcotics laws. The arresting officer discovered 10 pounds of pure heroin, as well as $112,450 in cash, at the taxpayers residence. The local narcotics authorities stated that the cost of pure heroin was approximately $100,000 per pound. The taxable income is computed as follows:
    Cash on hand when arrested   $ 112,450
    Cost of heroin (10 lbs. x $100,000 per lb.) 1,000,000
    Adjusted Gross Income (AGI)   $1,112,450
    Standard deduction 3,800  
    Exemption (phased out) –0– –3,800
    Taxable income   $1,108,650
Example 3. SOURCE AND APPLICATION OF FUNDS
The taxpayer was arrested for possession of narcotics on July 27, 2014. At the time of arrest, the taxpayer had on their person $24,947 in cash and a small amount of drugs. The taxpayer stated to the xxxx arresting officer that a truck seized was purchased for cash on May 19, 2014 for $16,986. The taxable income is computed as follows:
  Funds applied:    
    Cash on hand increased   $ 24,947
    Purchase of truck   16,986
    Total funds applied   $ 41,933
  Funds provided:    
    Adjusted Gross Income (AGI) $ 41,933
         
  AGI determined   $ 41,933
  Less: Standard deduction $3,800  
    Exemption 2,450 –6,250
  Taxable income   $ 35,683
Example 4. SPECIFIC IDENTIFICATION:
    Sales of Heroin
It was determined by the DEA that the taxpayer bought and sold three to four kilos of heroin per month. The DEA also stated that the taxpayer, during the current year, had purchased 10 kilos of heroin @ $45,000 per kilo and sold 10 kilos @ $60,000 per kilo. The taxable income is computed as follows:
    Gross sales (10 kilos @ $60,000 per kilo) $ 600,000
    Purchases (10 kilos @ $45,000 per kilo) 450,000
    Net profit $ 150,000
    Self-employment tax deduction – 5,766
    Adjusted Gross Income (AGI) $ 144,234
    Less: Standard deduction $3,800  
    Exemption 1,813 –5,613
    Taxable income   $ 138,621

Narrative


You were stopped in [CITY, STATE,] on December 9, 2017, for a traffic violation. A search of your person and vehicle revealed $21,997 in cash. The money was seized by the police department.

At the time of your arrest, the officer questioned you regarding the origin of the money and you stated that the money was from a "pick up" from a xxx xxxx. At a later date, you told the Internal Revenue Service (IRS) that you earned half of the money by working for your father’s xxxx business. The other half was given to you by your father.

You have admitted in the past to taking money out of the country to relatives in xxxx.

Presently, you are serving time in a federal prison for two charges: conspiracy to distribute cocaine and distribution of cocaine.

A search of the Internal Revenue Service Campus records in Cincinnati, Ohio, shows no filing history.

Based on the above stated facts, it appears that you have concealed your assets. Therefore, a jeopardy assessment is recommended for the 2017 and 2018 tax years.

Distribution of Approval Package

A total of 5 files are prepared, and sent to the following:
  1. Technical Services
  2. Examination Jeopardy/Termination Coordinator
  3. Criminal Investigation (CI)
  4. Centralized Case Processing
  5. Collection, the Revenue Officer who will assert the levy (RO)
CONTENTS OF THE FILES
Item TS Exam Coordinator CI CCP RO
Form 2644 1 1   Orig, 1 1
Form 2645 Orig 1     1
Form 3198 1 1   Orig  
Form 4135 2 1 1 Orig    
Form 5345-D 1 1 1      
Form 5346 1 1 1      
Pattern letter Orig 1     Orig, 2
Tax computation Orig 1   1 2
Narrative Orig 1   1 2
Copy of return/SFR3 1 1   1  
Other information Orig 1      
KEY: Orig denotes the original document and a number (1, 2) denotes a copy.

____________




____________
1 For terminations only.
2 For assessments where a TC 914 is needed.
3 The original substitute for return (SFR), if applicable, was processed. A copy is retained for the file.