Jeopardy assessments for tax collection are rare, but they are a tool available to the IRS in extraordinary circumstances. Jeopardy assessments stand outside the normal IRS assessment procedures. In general,
and in extraordinary circumstances, jeopardy assessments permit the IRS to assess additional income taxes first and only later give the taxpayer a chance to contest the correctness of the assessment. It circumvents the normal assessment and administrative procedures to contest the additional tax before it is assessed. Upon judicial review of an IRS jeopardy assessment, “reasonableness” is the key inquiry. That is, the courts look to three conditions:
(i) The taxpayer is or appears to be designing quickly to depart from the United States or to conceal himself or herself;
(ii) The taxpayer is or appears to be designing quickly to place his, her, or its property beyond the reach of the Government either by removing it from the United States, by concealing it, by dissipating it, or by transferring it to other persons; and,
(iii) The taxpayer’s financial solvency is or appears to be imperiled.
Further, certain facts may support a jeopardy assessment, as spelled out in Bean v. United States, 618 F. Supp. 652, 658 (N.D. Ga. 1985), such as, but not limited to:
“[p]ossession of, or dealing in, large amounts of cash,” “[p]ossession of . . . evidence of other illegal activities,” “[p]rior tax returns reporting little or no income despite the taxpayer’s possession of large amounts of cash,” “[d]issipation of assets through forfeiture, expenditures for attorneys’ fees, appearance bonds, and other expenses,” “[t]he lack of assets from which potential tax liability can be collected,” “[u]se of aliases,” “[f]ailure to supply appropriate financial information when requested,” and “[m]ultiple addresses”) (citations omitted)).
Several courts have considered additional factors such as whether: the taxpayer travels abroad frequently, . . . the taxpayer is leaving or may be expected to leave the country, . . . the taxpayer has recently conveyed real estate, . . . or discussed such conveyance, . . . the taxpayer controls bank accounts containing liquid funds, . . . the taxpayer has not supplied public agencies with appropriate forms or documents when requested to do so, . . . the taxpayer controls numerous business entities, . . . the taxpayer attempts to make sizable bank account withdrawals at the time of the assessment, . . . the taxpayer maintains foreign bank accounts, . . . the taxpayer takes large amounts of money offshore, . . . the taxpayer has many business entities which can be used to hide his assets.
Again, jeopardy assessments are not the norm, but they do reside in the IRS’s assessment and collections toolkit. Be advised of the above factors if you fear such an assessment may be forthcoming and prepare accordingly.