Congress should provide for a judicial appeal of a levy made
    without regard for the 10-day notice and demand requirement as allowed
    under IRC 6331(a) when collection of the tax is deemed to be in
    jeopardy.

Reasons for Change

There are two types of jeopardy situations: when collection of the tax is in jeopardy under IRC 6331 (a), and when the assessment or collection of a deficiency will be jeopardized by delay under IRC 6861 or IRC 6862. (IRC 6861 involves income taxes; IRC 6862, all other taxes.) The provision under IRC 6331(a) involves immediate collection when the taxpayer has voluntarily filed a tax return, and the provisions under IRC 6861 and IRC 6862 normally refer to either a deficiency found in an audit examination or to the circumstance in which no tax return was filed. The Tax Reform Act of 1976 provided for administrative appeal and judicial review for assessments made under IRC 6861 and IRC 6862. There are presently no known problems with the administration of IRC 6861 and IRC 6862.

Problems do arise, however, under immediate collection procedures (the IRS refers to them as "prompt assessments") in the jeopardy clause of IRC 6331:(a). The applicable IRM sections follow:

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IRM 5213.4 PROMPT ASSESSMENTS

GENERAL

(1) Prompt assessments are generally only requested when a taxpayer voluntarily files a delinquent or current tax return as the result of a delinquency investigation or a return compliance program. When a taxpayer refuses to file a return, and collection of the tax liability is determined to be in immediate jeopardy, the procedures contained in IRM 5213.2 should be followed. For special provisions regarding 100 percent penalty cases and returns prepared and signed under authority of IRC 6020(b), see IRM 5213.45.

(2) Taxpayers who voluntarily file tax returns or who have exhausted their pre-assessment appeal rights on proposed 100 percent penalty or IRC 6020(b) assessments, are not legally entitled to any delay in the assessment of the amount of tax indicated on the return. For purposes of administrative efficiency, tax returns are not normally assessed immediately upon receipt. Under the prompt assessment procedures, if collection of the tax is believed to be in jeopardy, the return is immediately processed and assessed. Then, collection of the tax is declared to be in jeopardy under the authority of IRC 6331(a). Collection action may then be taken without regard to the ten-day notice and demand period.

(3) It is important to emphasize the differences between a jeopardy assessment and a prompt assessment. A jeopardy assessment can only be approved by the District Director or the Director of International Operations. Jeopardy assessments are recommended when collection is deemed to be in jeopardy, and there is not sufficient time to assess the unagreed tax liability using standard procedures. A prompt assessment is made when collection is determined to be in jeopardy on a tax liability which can be assessed, i.e., when a return has been voluntarily filed, and when assessment appeal rights have been exhausted on a proposed 100 percent penalty or IRC 6020(b) assessment.

CRITERIA FOR RECOMMENDING PROMPT ASSESSMENTS

(1) The necessity for prompt assessment should be rare and should only arise in instances where collection of the tax appears to be in jeopardy at the time the delinquent return is secured or prepared and when there is every intention of proceeding with enforcement action immediately upon receipt of the assessment.

(2) Prompt assessments should be limited to the following situations and will be based upon the facts and circumstances of each individual case: a) taxpayers who are consistently suffering financial losses; b) taxpayers against whom large damage suits are pending, or against whom such suits are threatened; c) taxpayers who have a past record of resisting or avoiding payment of their taxes; d) taxpayers suspected of having plans for leaving the United States without making provision for payment of their taxes, with particular attention being given to aliens; e) other taxpayers. where the facts and circumstances indicate that the taxpayer's present or future financial condition is such as to make collection of the tax doubtful.

(3) Since the initial decision as to whether or not collection of a tax is in jeopardy must be made by the person handling the case, it is necessary that proper authority be delegated to that person. District Directors and the Director of International Operations should consider issuing redelegation orders authorizing revenue officers, GS-9 and above, to enforce collection without regard to the ten-day notice period on any case where it is determined that collection of the tax may be in jeopardy.

(4) If the initial investigation indicates that collection may he in jeopardy and the investigating employee does not have delegated authority. the case should be discussed with a revenue officer who has been delegated the authority in (3) above. and a decision should be made as to the course of action to be made.

(5) The case history file should be fully documented to reflect the facts and circumstances that support the determination that collection is in jeopardy. e.g.. Collection Information Statement, financial analysis. narratives of conversations with other creditors of the taxpayer, data on previous case histories, or other list of leviable assets upon which enforcement action may be taken when assessment is received.

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Even though the IRS has not provided regulations to indicate the circumstances under which collection is considered to be in jeopardy under IRC 6331(a), the IRM has specified five conditions. It is conditions (a) and (e) which allow abuses to occur. A revenue officer with a large withholding tax delinquency may arbitrarily decide that collection is jeopardized solely because the taxpayer owes a lot of money to other creditors (or maybe even to the IRS). even though there may be no evidence to indicate that other creditors may move against the taxpayer. Or the jeopardy determination may be based on the revenue officer's perception that the taxpayer cannot continue to operate under the taxpayer's present financial situation without any knowledge of important and relevant future events, such as forthcoming receivables or impending managerial improvements which could increase profitability.

If there should be a court review of the levy power. it should exist for jeopardy collection actions made under IRC 6331 (a). Taxpayers presently subjected to that exercise of power do not have any protection against the arbitrary use of that power. A court review, where the IRS deems tax collection to be in jeopardy under IRC 6331 (a), would compel the IRS to use their prompt assessment procedures more judiciously, and actually provide a measure of protection to those taxpayers who need it.