What to Do After a Jeopardy Determination

A jeopardy determination is an uncommon action by the Internal Revenue Service (IRS) when it believes collecting a tax debt is in immediate danger. This measure allows the agency to bypass standard procedures to secure revenue without delay, acting swiftly when there is a credible risk that a taxpayer will make themselves or their assets unavailable for collection. This is a powerful enforcement tool, and it shifts the burden to the taxpayer to prove the determination is unreasonable or the amount assessed is incorrect.

Grounds for a Jeopardy Determination

The IRS initiates a jeopardy determination based on a reasonable belief that tax collection is at risk. One of the primary grounds is when a taxpayer appears to be planning a quick departure from the United States or is taking actions to conceal themselves. This might be evidenced by liquidating assets, closing bank accounts, or making travel arrangements that suggest an intent to leave the country permanently.

Another significant factor is the dissipation or transfer of assets. The IRS may act if it finds evidence that a taxpayer is moving funds to offshore accounts, transferring property titles to other individuals or entities, or otherwise attempting to place assets beyond the government’s reach. The agency looks for actions designed to quickly reduce a taxpayer’s financial footprint within the U.S., making it difficult to enforce a tax lien or levy.

Financial insolvency can also trigger a jeopardy determination. If a taxpayer’s financial condition is deteriorating to a point where they may soon be unable to pay their tax debts, the IRS might intervene. This is not about typical financial hardship but rather a rapid decline that threatens the government’s ability to collect what is owed.

Immediate Consequences of the Determination

Upon making a jeopardy determination, the IRS can immediately assess the tax it believes is due and demand payment. Within five days of the assessment, the IRS must provide the taxpayer with a written statement detailing the information it relied on to make the determination. This notice also explains the taxpayer’s right to appeal.

The most severe consequence is the IRS’s authority to take immediate collection action. In a jeopardy situation, the standard waiting periods are eliminated. The agency can file a Notice of Federal Tax Lien and issue levies to seize bank accounts, wages, and other personal property without delay.

This accelerated collection power means a taxpayer’s assets can be frozen or seized almost instantaneously. This places immediate pressure on the taxpayer to address the situation through the available appeal channels.

Required Information for an Administrative Appeal

To challenge a jeopardy determination, a taxpayer must file a formal written protest for an administrative appeal with the IRS Office of Appeals. The protest must include:

• The taxpayer’s name, address, and taxpayer identification number.
• A copy of the jeopardy determination notice received from the IRS.
• A clear statement of which tax periods are being disputed.
• A detailed statement of facts and legal arguments explaining why the determination is unreasonable or the assessment is incorrect.
• Supporting evidence, such as financial records, proof of asset ownership, or business records that contradict the IRS’s conclusions.

The Administrative and Judicial Review Process

The request for an administrative review must be filed within 30 days after the IRS provides the written statement explaining the basis for the determination. The IRS Appeals office is required to make its determination within 15 days of the taxpayer’s request. During the review, the taxpayer or their representative presents evidence and arguments to an Appeals Officer, who independently reviews the case.

If the administrative appeal is unsuccessful, or if the IRS fails to act within the specified timeframe, the taxpayer has the right to seek an expedited judicial review. A lawsuit can be filed in either the local U.S. District Court or the U.S. Tax Court. This legal action must be initiated within 90 days after the earlier of the date the IRS notifies the taxpayer of the Appeals decision or the 16th day after the administrative appeal was filed.

The court will examine whether the IRS’s decision to make the jeopardy determination was reasonable and if the amount assessed was appropriate. The court must make a determination within 20 days of the lawsuit being filed. The court’s decision on this issue is final and cannot be appealed. If the court rules in the taxpayer’s favor, the IRS may be ordered to reverse its actions.