While it is true that jeopardy and termination assessments dispense with certain requirements that are usually followed in regular deficiency assessment procedures (for instance, the issuance of a notice of statutory deficiency), it does not mean that no protocols are in place. Should the IRS opt to exercise its authority in initiating jeopardy and termination assessments, the IRS still needs to follow certain procedural requirements.
Making a Recommendation for Jeopardy or Termination Assessment
The IRS uses a form to initiate a jeopardy or termination assessment. In this form, the IRS must provide certain information including its compliance with all applicable procedural requirements; that the facts as found support a recommendation for jeopardy or termination assessment; the amount of taxpayer liability must be supported by proper documentation; and a reasonable finding of the taxpayer’s liability. Most importantly, the determination of the taxpayer’s liability must not be “arbitrary, capricious, or excessive in amount under the circumstances.”
A Rational Connection Between Facts Known and Inferred
All the documentation relevant to any assessment inquiry is presumed to be in the possession or control of the taxpayer. That is why the burden of proof in an assessment process lies with the taxpayer. The IRS does not have possession of all of the taxpayer’s records, and so sometimes information may be inferred based on information that is known.
Given that jeopardy and/or termination assessment are a deviation from the regular deficiency assessment process, and given that the IRS is allowed some measure of inference into the facts supporting its recommendation for such an assessment, such inference must be circumscribed by certain criteria.
First, the facts on which inferences are made must be based on transactions or a volume of operations that span a reasonable period of time.
Secondly, the business activity upon which the inference is made must have been continuous or ongoing during the entire period of the projection.
Third, there is a reasonable comparison between the operations or transactions carried out during the limited period of time compared to the entire period.
Fourth, any inferences must be limited to those that are based on or grounded on provable facts.
Use of Illegally Seized Evidence
As a general rule, illegally seized evidence may not be used against a person. However, case law exists where the IRS was allowed to use the same as evidence in civil tax proceedings.
Again, because this is a deviation from the general rule of evidence, the IRS’s capacity to use such evidence is determined by the presence of preexisting requirements. For one thing, the IRS must not have initiated, and must not have participated, in the search wherein such evidence was illegally seized.
But even if IRS agents were involved in the illegal search and seizure, such evidence may still be admitted if there is an existing internal policy that allows the Service to determine whether or not it can use the seized evidence. This internal policy should be based on criteria that include, at a minimum, a good-faith state search.
Notice of Assessment
Once the IRS and its Counsel signs off on the Recommendation for jeopardy and/or termination assessment, a Notice of Assessment is issued to the taxpayer, with a demand for immediate payment.
Late Statutory Notice of Deficiency
Finally, while regular deficiency assessments begin with the statutory notice of deficiency issued to the taxpayer, in jeopardy and termination assessments, this notice may be issued at a later time, after the notice of assessment and demand for payment is made.
For a jeopardy assessment, the notice of deficiency must be issued within 60 days from the assessment date. For a termination assessment, on the other hand, the notice must be issued within 60 days after the due date of the return, or the date the return is filed, whichever comes later.
As it is with regular deficiency assessments, a late statutory notice of deficiency in jeopardy or termination assessments informs the taxpayer of the rights and remedies available to him as it pertains to the notice of assessment issued against him. For instance, the taxpayer can seek administrative review of the jeopardy or termination assessment after receipt of the statutory notice of deficiency and a written statement containing information upon which the assessment is based.