5.17.15 Termination and Jeopardy Assessments and Jeopardy Collection22.214.171.124 Background126.96.36.199 Jeopardy Assessments Initiated by Collection188.8.131.52.1 Grounds for Jeopardy Assessments184.108.40.206.2 Form and Procedure220.127.116.11.3 Stay of Collection of Jeopardy Assessments18.104.22.168 Presumption Regarding $10,000 in Unclaimed Cash22.214.171.124 Jeopardy Collection126.96.36.199.1 Sale of Property Seized by Jeopardy Levy188.8.131.52.2 Form and Procedure184.108.40.206 Administrative Review220.127.116.11 Judicial Review Part 5. Collecting ProcessChapter 17. Legal Reference Guide for Revenue OfficersSection 15. Termination and Jeopardy Assessments and Jeopardy Collection 5.17.15 Termination and Jeopardy Assessments and Jeopardy Collection Manual Transmittal October 23, 2014 Purpose (1) This transmits revisions to IRM 5.17.15, Termination and Jeopardy Assessments and Jeopardy Collection. Material Changes (1) Reviewed and updated IRM where necessary for IRM references. Effect on Other DocumentsThis material supersedes IRM 5.17.15, dated December 29, 2009. AudienceSB/SE Revenue Officers Effective Date(10-23-2014)Rocco A. StecoActing Director, Collection PolicySmall Business/Self-Employed 18.104.22.168 (12-29-2009) Background If collection of an unassessed liability is in jeopardy, the IRS may make an immediate assessment and pursue collection without the need to follow normal assessment and collection procedures. As soon as a "jeopardy assessment" is made, the tax, penalties, and interest become due and payable. IRC §§ 6851 and 6861. See IRM 5.1.4, Jeopardy, Termination, Quick and Prompt Assessments, for procedures for making jeopardy assessments. Generally, if collection of a tax is in jeopardy, a jeopardy assessment has already been made. There may be situations, however, where the tax liability has already been assessed through normal procedures before a jeopardy determination is made. In either situation, when collection of the tax liability is in jeopardy, the IRS may immediately proceed to collect by levy without waiting the usual 10-day period after notice and demand to expire, IRC § 6331(a), or the 30-day period after notice of intent to levy is made, IRC § 6331(d). For procedures for issuing jeopardy levies without a jeopardy assessment, see IRM 5.11.3, Jeopardy Levy without a Jeopardy Assessment. 22.214.171.124 (10-23-2014) Jeopardy Assessments Initiated by Collection The term "jeopardy assessment," generally speaking, may refer to either a termination assessment under IRC § 6851, or a jeopardy assessment under IRC §§ 6861 and 6862. Both types of assessment are premised upon a determination that the collection of the tax is in jeopardy. A termination assessment applies to the current tax year, or the immediately preceding tax year if the due date for the return has not passed. If jeopardy is determined, the taxpayer’s tax year is terminated and treated as a complete tax year for assessment purposes. Termination assessments are made for income taxes only. A jeopardy assessment applies to a closed tax year, where the due date for filing a return has expired. For income, estate, gift, and certain excise taxes, assessment is made pursuant to IRC § 6861. For other kinds of taxes (employment and other excise taxes), assessment is made pursuant to IRC § 6862. Note: Termination and jeopardy assessments should be distinguished from quick and prompt assessments. See IRM 126.96.36.199,Quick Assessment, and IRM 188.8.131.52,Prompt Assessments, for a discussion of the situations in which a quick or prompt assessment may be made and applicable procedures. Collection personnel should not initiate termination assessments, but rather refer potential termination assessments to Examination for appropriate action. See IRM 184.108.40.206.2, Termination Pre-Assessment Recommendations. Jeopardy assessments initiated by Collection personnel are limited to proposed: Trust Fund Recovery Penalty assessments; Employment and excise tax assessments, whether or not the return due date has expired; Partnership penalty assessments; Income tax assessments when there is no question as to the amount of liability. See IRM 220.127.116.11,Jeopardy Assessments, Pre-Assessments. The discussion below is limited to provisions applicable to Collection personnel. 18.104.22.168.1 (12-29-2009) Grounds for Jeopardy Assessments Treas. Reg. § 301.6861-1(a), by reference to Treas. Reg. § 1.6851-1(a), provides that jeopardy will exist if the IRS finds that the taxpayer: is (or appears to be) planning to leave the United States or to remove his or her property from the United States, is concealing himself or herself or his or her property within the United States, or is doing any other act threatening the collection of tax for the current or the preceding taxable year, such as transferring or dissipating assets, making himself or herself financially insolvent, or, in the case of a corporation, liquidating substantially all of its assets. In determining whether one of the three circumstances stated above is present, there are many factors which the court may consider. The court, for instance, may consider whether the taxpayer is involved in illegal activity. Mueller v. CIR, 882 F.Supp. 1060, 1062 (S.D. Fla. 1995); Harvey v. United States, 730 F.Supp. 1097, at 1106 (S.D. Fla. 1990) (citing Young v. United States, 671 F.Supp. 1340 (S.D. Fla. 1987)). The court also may consider: whether the taxpayer possesses, or deals in, large amounts of cash; whether prior tax returns report little or no income despite taxpayer’s possession of large amounts of cash; whether assets have been dissipated, such as through forfeiture, expenditures for attorney’s fees, or appearance bonds; whether there is a lack of assets from which potential tax liability can be collected; whether the taxpayer has used aliases which makes it more difficult to locate either the taxpayer or his assets; whether the taxpayer has failed to supply appropriate financial information; whether the taxpayer has used multiple addresses, making it hard to find the taxpayer; whether taxpayer has a history of illegal activity, convictions, or probable cause to believe that the taxpayer was engaged in illegal business activities; whether taxpayer has a history of concealing assets overseas; whether taxpayer recently sold or transferred property; whether taxpayer transferred property to relatives for inadequate consideration; and whether taxpayer transferred property in the wake of an investigation. Magluta v. United States, 952 F.Supp. 798 (S.D. Fla. 1996), citing, Mesher v. United States, 736 F.Supp. 233, 235-236 (D. Or. 1990). The financial solvency of the taxpayer must be threatened or appears to be imperiled or there can be no jeopardy. The calculation of solvency does not take into account the proposed assessment of tax, penalty, and interest. Evidence of a pending bankruptcy does not alone establish insolvency, though evidence of a prior adjudication of bankruptcy may be a factor in establishing insolvency. 22.214.171.124.2 (12-29-2009) Form and Procedure Only the Area Director has the authority to determine that a jeopardy assessment should be made. Written approval by the Chief Counsel or his or her delegate is also required. See IRM 5.1.4, Jeopardy, Termination, Quick and Prompt Assessments, for procedures for making jeopardy assessments. See also Form 2644 , Recommendation for Jeopardy or Termination Assessment . Sufficient, objective facts must support the reasonableness of the determination that collection is in jeopardy. The amount assessed must be supportable, i.e. there must be a reasonable, factual basis for determining that the taxpayer received income. For income, estate, gift, and certain excise taxes, a statutory notice of deficiency for the jeopardy assessment must be issued within 60 days following assessment. See IRC § 6861(b). A statutory notice of deficiency for the termination assessment of income taxes must be issued within 60 days after the due date of the taxpayer’s return, regardless of whether the taxpayer files a return. See IRC § 6851(b); Perlowin v. Sassi , 711 F.2d 910 (9th Cir. 1983). 126.96.36.199.3 (12-29-2009) Stay of Collection of Jeopardy Assessments After a jeopardy assessment is made, the IRS is required to send notice and demand to the taxpayer for the amount of the jeopardy assessment. Regardless of whether the taxpayer has filed a petition with the Tax Court, the amount of the assessment must be paid within 10 days unless a bond is filed as provided in IRC § 6863. See Treas. Reg. § 301.6861-1(d). The bond must be equal to the amount of the jeopardy assessment the collection of which the taxpayer is seeking to stay, plus interest. Upon the filing of such a bond, collection of the amount covered by the bond is stayed. See Treas. Reg. § 301.6863-1. 188.8.131.52 (11-30-2007) Presumption Regarding $10,000 in Unclaimed Cash If any person is in possession of cash or a cash equivalent in excess of $10,000.00, and does not claim it as his or as that of a readily identifiable person, IRC § 6867 provides that the IRS may presume that it represents gross income of a single unidentified individual for that taxable year and that, for purposes of IRC § 6861 (Jeopardy Assessments of Income, Estate, Gift, and Certain Excise Taxes), collection of the tax will be jeopardized by delay. The entire amount is taxed at the highest rate in Code section 1 and the possessor is treated as the taxpayer for certain limited purposes. The possessor is sent a statutory notice of deficiency for assessments made under IRC § 6867. The possessor is also entitled to contest the assessment in Tax Court. The possessor is entitled to the information that the "taxpayer" would receive as provided under IRC § 7429(a)(1). This section mandates that the Secretary provide the taxpayer with a written statement indicating the information relied upon in making the assessment within five days after the assessment is made. The possessor is not entitled to the administrative or judicial review provided by IRC § 7429(a). Commissioner v. Hendrickson, 873 F.2d 1018 (7th Cir. 1989); Robrish v. United States, 579 F. Supp. 477 (D. Mass. 1983). Should the true owner come forward, the assessment against the possessor will be abated and replaced by an assessment against the owner. The right to challenge the assessment will vest in the true owner, and he will be entitled to full review rights under IRC §§ 7429(a) and (b). Matut v. Commissioner, 858 F.2d 683 (11th Cir. 1988), vac’g & rem’g 88 T.C. 1250 (1987). Cash equivalents include coins, precious metals, jewelry, precious stones, postage stamps, foreign currency, bearer obligations, and any medium of exchange that has been frequently used in illegal activities. Treas. Reg. § 301.6867-l(f). 184.108.40.206 (10-23-2014) Jeopardy Collection Generally, before property can be levied, the taxpayer must be given a Notice and demand (taxpayer has 10 days to pay the amount due) Notice of intent to levy (taxpayer has 30 days to pay before property can be levied), and Notice of a right to a Collection Due Process (CDP) hearing under IRC § 6330 (taxpayer has 30 days to request a hearing). Note: Both the notice of intent to levy and the notice of a right to a CDP hearing are provided by Letter 1058, Notice of Intent to Levy and Notice of Your Right to a Hearing. See IRM 220.127.116.11.2, Required Notices, for a discussion of the required notices and how to calculate the time periods. If collection of the tax is in jeopardy, the IRS is not required to wait 10 days after giving the taxpayer notice and demand, or 30 days after giving notice of intent to levy and notice of a right to a CDP hearing. Note: In case a taxpayer mails a request for a hearing under IRC § 6330 on the 30th day, an additional 15-day waiting period should be allowed before issuing a levy except in certain situations. See IRM 18.104.22.168.2(4). Delegation Order 5-3 (Rev. 1) provides the delegations of authority for issuing notices of intent to levy and notices of the right to a CDP hearing, including the authority to issue notices of levy when collection is in jeopardy. See IRM 22.214.171.124. The authority to issue notices of levy when collection is in jeopardy (with or without a jeopardy/termination assessment) and the pre-levy notices have not been issued and/or the waiting periods after the notices have not passed has been delegated to, among others, SB/SE Collection Territory Managers, Insolvency Territory Managers, and Advisory Territory Managers. See IRM 126.96.36.199(20) & (21). Additionally, the concurrence of the appropriate Area Counsel or Associate Area Counsel is required. The authority to issue notices of levy during the 15-day waiting period following the end of the 30-day period for notice of intent to levy and notice of a right to a hearing, if collection is in jeopardy, has been delegated to, among others, SB/SE Collection Territory Managers, Insolvency Territory Managers, and Advisory Territory Managers. See IRM 188.8.131.52(17) & (18). Even after all pre-levy notices have been issued and the waiting periods for them have passed, a jeopardy determination may be required for a levy because: It is the appearance date of a summons There is a pending or active installment agreement A rejected installment agreement can be appealed or is being appealed An offer in compromise is pending A rejected offer in compromise can be appealed or is being appealed In these situations, the authority to issue the notice of levy is delegated to, among others, SB/SE Territory Managers, Insolvency Territory Managers, and Advisory Territory Managers. Additionally, concurrence of the appropriate Area Counsel or Associate Area Counsel is required. See IRM 184.108.40.206(14) & (15). Note: All jeopardy levies must be approved by Counsel even though under IRC § 7429(a)(1)(A) Counsel is only required to approve jeopardy levies issued during the 30 days from notice and demand. See IRM 220.127.116.11(3). See IRM 18.104.22.168.9, Refund Litigation, for information regarding the issuance of a levy to collect certain divisible taxes, such as trust fund recovery penalties, that are included in a suit for a refund. Generally, no levy can be issued to collect such taxes unless collection is in jeopardy and Counsel approval has been obtained. While a tax delinquency need not be 10 days old before a jeopardy levy may be issued, there must be a notice and demand for immediate payment of the tax liability and a failure or refusal to pay before the levy is lawful. Thus, in Martinez v. United States, 669 F.2d 568 (9th Cir. 1981), the jeopardy levy was ruled invalid because the taxpayer did not receive notice and demand until after the levy was served. There is no predetermined waiting period for refusal or failure to pay, however, and the levy may be made immediately after failure or refusal to pay. L.O.C. Indus., Inc. v. United States, 423 F.Supp 265, 273 (M.D. Tenn 1976). The IRS must provide the taxpayer with a notice containing the same information as is contained in the pre-levy notice within a reasonable time after the jeopardy levy. Treas. Reg. § 301.6330-1(a)(2)(ii). The notice contains the statement of taxpayer’s collection due process rights required by IRC § 6330(f). Dorn v. Commissioner, 119 T.C. 356 (2002). 22.214.171.124.1 (10-23-2014) Sale of Property Seized by Jeopardy Levy Whenever levy is made without waiting the 10-day period after notice and demand required by IRC § 6331(a), public notice of sale of the property seized shall not be made within such 10-day period unless IRC § 6336 (relating to the sale of perishable goods) applies. See IRC § 6335(b). See also IRM 126.96.36.199, IRM 188.8.131.52, and IRM 184.108.40.206 for more information regarding the seizure and sale of perishable goods. If the Area Director determines that any property seized is liable to perish or become greatly reduced in price or value by keeping, or that such property cannot be kept without great expense, the IRS may return such property to the owner upon his/her payment of the appraised value of the property or the posting of an acceptable bond or if the owner neither pays the appraised value or posts a bond, the IRS shall make public sale as soon as practicable after the seizure. See IRC § 6336; Church of Hakeem, Inc. v. United States, 1979 WL 1475 (N.D. Cal. 1979) (yacht ordered sold where expenses of conservation and maintenance would greatly reduce net proceeds if sale delayed). But see , Galusha v. Commissioner, 95 T.C. 218 (1990) (IRS did not prove expenses would greatly reduce net proceeds if sale delayed). In the case of a jeopardy assessment of income, estate or gift tax under IRC § 6861, property levied upon and seized may not be sold until expiration of the period within which the taxpayer may petition the Tax Court for a redetermination of the assessment, or until the Tax Court decision becomes final. See IRC § 6863(b). The property may still be sold if: the taxpayer consents, a determination is made that expenses of conserving and maintaining the property will greatly reduce the net proceeds, or the goods are perishable. Note: Remember that the provisions of IRC § 6863(b), addressing petitions to the Tax Court, are conditions precedent to the sale of seized property that must be complied with to remove any taint of illegality from the sale . For jeopardy assessments and seizures made under IRC § 6862, where there is no Tax Court review, a different stay provision applies. IRC § 6863(c) stays the sale of seized property until the district court’s determination under IRC § 7429 becomes final. 220.127.116.11.2 (12-29-2009) Form and Procedure The Territory Manager has the authority to approve a jeopardy levy. Written approval by the Chief Counsel or his or her delegate is also required. See discussion beginning at IRM 18.104.22.168(3), above. See IRM 5.11.3, Jeopardy Levy without a Jeopardy Assessment, for procedures for issuing a jeopardy levy without a jeopardy or termination assessment. 22.214.171.124 (12-29-2009) Administrative Review IRC § 7429(a)(1) requires that within five days after the jeopardy assessment or levy is made, the IRS must send the taxpayer a written statement of the information relied on in making the assessment or levy. The notice must state the specific facts and reasons (not mere conclusions) relied on by the IRS; if the notice states merely conclusions, the assessment or levy may be held invalid. Within 30 days after the written statement is furnished (or 30 days after the five-day period expires), the taxpayer may ask for administrative review. This request requires the IRS to determine whether making the assessment or levy was reasonable and whether the amount assessed was appropriate under the circumstances. The request by the taxpayer for administrative review is a prerequisite to judicial review. 126.96.36.199 (11-30-2007) Judicial Review The taxpayer may seek judicial review within 90 days after the earlier of the date the IRS notifies the taxpayer of the administrative determination or 90 days following the 16th day after the taxpayer requests administrative review. Normally the proper forum for review is the United States District Court, but the Tax Court has concurrent jurisdiction where a Tax Court petition was filed prior to assessment or levy and one or more of the taxable periods before the Tax Court is covered by the jeopardy assessment. See IRC §§ 7429(b)(1) and (2). The court’s review is limited to the reasonableness of the assessment or levy and the appropriateness of the amount. The court has 20 days to make its determination. However, the taxpayer, on reasonable grounds, may request an extension of up to 40 days. See IRC §§ 7429(b)(3) and 7429(c). The court’s determination is final and not subject to appeal or review by any court. See IRC § 7429(f). However, it is the IRS position that if the court’s decision is based on some ground other than the reasonableness of the assessment or levy and the appropriateness of the amount assessed, it is reviewable by an appellate court. See Thermtron Products, Inc. v. Hermansdorfer, 423 US 336 (1976); see also Meadows v. United States, 665 F.2d 1009 (11th Cir. 1982).