Jeopardy and Termination Assessment Cases: In Some Circumstances, the IRS May Resort to a Series of Procedures Known as Jeopardy or Termination Assessment and Collection

By Hartsock, William D. | Journal of Accountancy, November 2014 | Go to article overview

Jeopardy and Termination Assessment Cases: In Some Circumstances, the IRS May Resort to a Series of Procedures Known as Jeopardy or Termination Assessment and Collection


Hartsock, William D., Journal of Accountancy


If the IRS believes that the collection of an unassessed liability is in jeopardy, it may take steps to begin collection proceedings without following the normal assessment and collection procedures (see Internal Revenue Manual (IRM) [section] 5.17.15.1). This sometimes occurs during an audit if the examiner discovers information suggesting that the taxpayer has concealed assets so as to make their discovery and tax collection extremely difficult. An examiner who believes that such a situation exists may consider pursuing a jeopardy or termination assessment under the Internal Revenue Code.

"Jeopardy assessment" and "termination assessment" are defined in Secs. 6851, 6861, and 6862. A jeopardy assessment applies to a closed tax year, one for which the due date of the return has passed. Thus, a jeopardy assessment can be made only after the taxpayer has filed a full-payment return or a deficiency has been determined. Sec. 6861 applies to income, estate, gift, and certain excise taxes. Sec. 6862 applies to employment and excise taxes not covered by Sec. 6861.

A termination assessment (defined in Sec. 6851) is used in a more extreme case of jeopardy than a regular jeopardy assessment, such as when the IRS suspects the taxpayer will flee the country In a termination assessment, the taxpayer's tax year is deemed to be terminated and treated as a completed tax year for the purposes of assessing the tax liability A termination assessment applies to the current tax year or the immediately preceding tax year if the tax return's due date has not yet passed. Termination assessments are used only on income tax returns.

IMPLICATIONS OF A JEOPARDY ASSESSMENT

A jeopardy assessment causes all taxes, penalties, and interest to become immediately due and payable. If a tax liability has been assessed and the IRS believes that the collection of the amount is in jeopardy, the Service may immediately proceed to collect the amount by levy without waiting for the usual 10-day period after notice and demand (Sec. 6331(a)). The IRS may also take collection steps even before the end of the 30-day period after it has given notice of intent to levy when it believes that the collection of the tax liability is in jeopardy (Sec. 6331(d)(3)). A jeopardy assessment is frequently used in cases involving narcotics, illegal wagering, and other forms of illegal activity or when the taxpayer is preparing to leave the United States. …

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