What Does a Jeopardy of Lien or Levy Mean?

A “jeopardy of lien or levy” indicates an urgent situation where a tax authority, such as the Internal Revenue Service (IRS), believes that the collection of unpaid taxes is at immediate risk. This belief allows the tax authority to bypass normal collection procedures and take swift, aggressive action to secure the tax debt. These actions can result in the rapid seizure of assets. The phrase highlights a point where the government perceives a need for immediate intervention to prevent potential loss of revenue.

Understanding Jeopardy Actions

Jeopardy actions are extraordinary measures employed by the IRS when it determines that delaying collection efforts could jeopardize the government’s ability to collect a tax liability. These actions are distinct from standard collection procedures involving notices and waiting periods. The IRS uses specific criteria to justify taking such immediate steps, focusing on situations where a taxpayer’s actions suggest an intent to evade payment.

A jeopardy assessment involves the immediate determination and assessment of a tax liability, allowing the IRS to establish legal liability without the usual delays. A jeopardy lien is the immediate filing of a tax lien against a taxpayer’s property, securing the government’s claim to the property without the typical 30-day waiting period. This lien acts as a public notice that the government has a legal right to the property. A jeopardy levy permits the immediate seizure of a taxpayer’s property or assets, such as bank accounts or wages, without the usual advance notice. This action is taken when the IRS believes assets might be concealed, dissipated, or moved out of reach.

The IRS generally considers collection to be in jeopardy under several circumstances. These include situations where the taxpayer is quickly departing the United States or moving property from the U.S. Also, if the taxpayer is concealing property or transferring assets to others to avoid collection. The IRS also considers a taxpayer’s financial solvency, initiating jeopardy actions if their financial health appears to be imperiled. These conditions must be met for the IRS to justify such an aggressive collection approach.

The Process of Jeopardy Action

Once the IRS determines that a tax liability is in jeopardy, it can initiate collection actions without adhering to the typical notice and waiting periods. A jeopardy assessment, lien, or levy can occur with little to no prior warning. For instance, assets can be seized immediately through a jeopardy levy, bypassing the usual 30-day notice of intent to levy. This immediate action is a significant deviation from standard collection protocols.

Despite the immediate nature of these actions, the IRS must provide specific notifications to the taxpayer after the action has been taken. Within five days after a jeopardy assessment or levy is made, the IRS must send the taxpayer a written statement detailing the information relied upon for taking the action. This statement must provide specific facts and reasons, rather than just conclusions, to justify the IRS’s determination.

For a jeopardy levy, the taxpayer must receive this written statement within five days of the levy being served. This notification helps inform the taxpayer of the basis for the IRS’s urgent collection efforts and explains why the IRS believes collection was in jeopardy.

Challenging a Jeopardy Action

Taxpayers facing a jeopardy action have avenues to dispute the IRS’s determination. The Internal Revenue Code provides for both administrative and judicial review of jeopardy assessments and levies. This process allows taxpayers to challenge the reasonableness of the assessment or levy, as well as the appropriateness of the amount assessed.

Initially, a taxpayer can request an administrative review by the IRS Appeals Office. This request must be made within 30 days of the date the IRS provides the written statement explaining the jeopardy action. During this administrative review, the IRS has the burden of proof to demonstrate that the collection action was reasonable under the circumstances. The Appeals Office will assess whether the IRS’s decision to pursue the jeopardy action was justified based on the criteria for jeopardy.

If the administrative review does not resolve the issue, judicial review is available. A taxpayer can file a lawsuit in federal court, such as the U.S. Tax Court or a U.S. District Court, to seek an abatement of the assessment or release of the lien or levy. The court will conduct an expedited review to determine the reasonableness of the jeopardy action. The burden of proof remains with the IRS to establish the reasonableness of its action and the appropriateness of the amount assessed.

To stay collection activities while challenging a jeopardy assessment, a taxpayer may post a bond. The bond must be equal to the amount of the jeopardy assessment for which the taxpayer seeks to stay collection, plus interest. Filing such a bond can halt collection efforts, allowing the taxpayer to pursue their appeal without immediate asset seizure. This option provides a safeguard for taxpayers during the review process.