The shortcut assessment procedures for tax collections deemed to be in “danger” include jeopardy and termination assessments.
All the relevant provisions of the Internal Revenue Code (IRC) authorizing jeopardy and termination assessments seem favorably skewed towards the IRS and unfavorably toward the taxpayer. For instance, in regular deficiency assessments, taxpayers are afforded the opportunity to challenge the assessment after receipt of a notice of assessment, and then again upon receipt of a notice of deficiency, before any assessment is even made.
For jeopardy and termination assessments, however, the statutory notice of deficiency may be issued to the individual after the assessment has been completed. This is in addition to a sufficient “written statement” containing information upon which the assessment is based.
This written statement, together with the statutory notice, are what provides the taxpayer the opportunity to finally challenge the assessment taken against him, though they may be provided to the taxpayer after the fact.
Under the Internal Revenue Code, within 30 days after receipt of the written statement, the taxpayer may request an administrative review from the IRS.
The purpose of the administrative review is to look into the question of whether:
- The assessment is reasonable under the circumstances; and
- The amount assessed is appropriate under the circumstances
The question of reasonableness is determined, as stated above, based on the circumstances. Hence, a jeopardy or termination assessment is reasonable if it is determined that, under the circumstances, there are reasonable, objective facts that show a person intended to leave the United States, conceal property, transfer property to a third person, or any other circumstances that make it reasonable to believe that collection will become futile.
On the other hand, a reasonable amount, under the circumstances, is the amount that can reasonably be expected to equal the liability due.
In conducting an administrative review, the IRS can take cognizance of evidence that was not only available during the time of the assessment, but also information that may subsequently become available.
The time period for requesting an administrative review is also important. If the taxpayer fails to request an administrative review within the 30-day period, this remedy expires. In the long run, failing to avail of this remedy will also negatively impact the taxpayer’s ability to request a judicial review. In other words, an administrative review is a prerequisite to a judicial review remedy.
A judicial review of a jeopardy or termination assessment may be availed of by the taxpayer within 90 days after the earlier of:
- The day the Secretary notifies the taxpayer of the decision on the administrative review; or
- The 16th day after making a request for administrative review
Tax Courts have concurrent jurisdiction with federal district courts to hold judicial review of jeopardy and termination assessments. This means that while US district courts generally have exclusive jurisdiction, if a petition for redetermination of a deficiency was filed in a timely way with the Tax Court prior to the assessment, and all the other requirements for the exercise of jurisdiction by the Tax Court has been met (i.e., one or more of the taxes or tax periods included in the petition for review was also included in the written statement provided to the taxpayer), then the Tax Court can properly hold judicial review over the jeopardy or termination assessment.
Burden of Proof
The issue in the administrative or judicial review of a jeopardy or termination assessment is the reasonableness of the assessment. Either way, the burden of proof to show that the assessment is reasonable rests on the government.
In either case, if the finding, either in the administrative or judicial review, is that the assessment was not proper for being excessive, abatement may be ordered, whether in whole or in part.