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Jeopardy Levy: IRS’s Most Dangerous Levy Action?

Jan 17, 2020

Can the IRS take a taxpayer’s assets without telling them how much they owe in taxes? The IRS does not use this form of enforced collection action often but, when the IRS does use it, the consequences could be devastating.

Generally, the IRS must issue a notice to a taxpayer before proceeding with a levy on their assets. The taxpayer is given 30 days to request a Collection Due Process (CDP) hearing, where the taxpayer can attempt to avoid the levy action by negotiating an installment agreement, disputing the tax liability that resulted in the levy, or presenting other defenses. The IRS will usually not take any levy actions during the 30-day period, or while the CDP hearing process is ongoing.

There are exceptions to the 30-day notice requirement. One of the situations where the IRS is not required to produce a notice is when they believe that collection of the tax is in jeopardy, which is known as a jeopardy levy. In this case, the IRS can bypass the notice requirement and immediately levy the taxpayer’s assets, such as a bank account, wages, car, or other property.

The IRS is only supposed to use the jeopardy levy in rare situations. Pursuant to IRC Sec. 6861 and Treasury Regulation 1.6851-1(a), a collection is considered to be in jeopardy if:

  • The taxpayer is or appears to be designing to quickly depart from the United States or attempting to conceal himself or herself.
  • The taxpayer is or appears to be designing to place his or her property beyond the reach of the Government by removing it from the United States, transferring it, dissipating it, or concealing it.
  • The taxpayer’s financial solvency is or appears to be imperiled.

In addition to the three situations mentioned above, 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 Sec. 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 Sec. 6861, collection of the tax is in jeopardy.

The burden of proof is on the IRS to show that the jeopardy levy was reasonable under the circumstances, and that one of the above conditions was satisfied.

When the levy occurs, the taxpayer has appeals options under IRC Sec. 7429 or CDP hearing under IRC Sec. 6330. Procedurally, to secure judicial review of the jeopardy levy, the taxpayer must first request an administrative appeal within 30 days after the day on which the taxpayer is furnished a written statement of the levy. A judicial appeal may be filed subsequently within ninety days after the issuance of a determination on the taxpayer’s administrative appeal or the sixteenth day after the filing of the administrative appeal, whichever is earlier. Pursuant to IRC Sec. 6863(c), sale of any of the taxpayer’s property that has been seized is stayed while the taxpayer pursues these avenues.

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Andal K. Iyengar

Andal Iyengar is a Senior Manager in the Private Client Services Group with public accounting experience and advisory services for privately held businesses and individuals including income tax compliance, accounting and financial statement preparation.

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