Did you know that the federal Internal Revenue Service (IRS) and the North Carolina Department of Revenue (NCDOR) don’t always have to give you notice before they can take your property? Sometimes, the tax authorities can take your property without any notice at all. When the tax authorities seize your property without notice, it’s called a jeopardy assessment.
There are strict rules that apply for when the government can seize property through a jeopardy assessment. There are also rules that allow you to challenge the assessment and demand return of your property. Here’s what you need to know about jeopardy assessments from our North Carolina tax dispute attorneys:
What is a jeopardy assessment?
A jeopardy assessment is a special tax liability that occurs without notice. In cases where the government taxing authority believes that a person is actively taking steps to conceal assets in order to avoid a tax levy, they may immediately seize assets. A person who faces a jeopardy assessment may challenge the assessment including asking for a hearing in front of a judge.
How does jeopardy assessment work?
When a person has an outstanding tax liability, the government may seize their assets in order to collect the tax liability. Both the IRS and the North Carolina Department of Revenue allow for jeopardy assessments in certain situations. If the tax authority believes that it’s necessary to seize assets without giving notice, they may use the jeopardy assessment procedures and take the property immediately. The tax authority may dispose of the property to satisfy the tax debt after a waiting period.
How do I know if a jeopardy assessment reasonable?
In order to make a jeopardy assessment, the taxing authority must have reasonable, objective facts that the person is taking steps to conceal property or planning to conceal property. Preparation to leave the United States, transfer of the property to a third person, attempts for the taxpayer to render themselves insolvent or attempts to take any other action to evade tax collection may justify a jeopardy assessment. Here are just some of the considerations that a tax assessor may rely on to determine whether a jeopardy assessment is reasonable:
- Whether the debtor does business using large amounts of cash
- Low reported income tax compared to the amount of cash in the taxpayer’s possession
- Dissipation of assets
- Assets available for tax seizure
- Use of aliases that may make it harder to find the taxpayer or find what assets belong to them
- Using multiple addresses that make it harder to find the taxpayer
- Whether the taxpayer provides necessary financial information on their tax documents
- A history of criminal behavior and whether there is evidence that the taxpayer has participated in illegal activity
- A history of overseas asset concealment
- Recent property sales and transfers
- Transferring property to friends or relatives for less than the value of the property
- Transferring property during an investigation
The purpose of a jeopardy tax assessment is to allow the tax authorities to seize the property before the debtor can conceal or transfer the assets. The tax authority must defend the seizure on the basis that it’s reasonable under all of the circumstances.
North Carolina jeopardy tax assessment laws
North Carolina jeopardy tax assessment laws are found in North Carolina General Statutes 105-241.23. The law says that if the tax assessor believes that immediate collection is necessary to realize the collection of a tax, they may seize the property with no waiting period. Within five days, the Secretary must provide a written statement of the facts that they rely upon in order to initiate the property seizure.
The taxpayer has 30 days after receiving the notice to initiate a review. If the debtor requests a review, the Secretary has 30 days to issue a written decision withholding or rescinding their decision to seize the property. If the debtor is still unhappy with the decision, they may request a judicial review of the seizure within 90 days.
If the debtor chooses to challenge a jeopardy assessment in civil court, the debtor files their appeal in the Superior Court of Wake County or in the county of their residence. The court has 20 days to hear the appeal. The grounds for court review is whether the seizure is reasonable.
United States federal tax assessment laws
The U.S. federal tax assessment laws come from Internal Revenue Code §§ 6851 and 6861. The laws say that when the date has passed for filing and there’s a reason to question assessment of property, IRS officials may make an immediate assessment without the normal notice and collection procedures. In typical assessment cases without jeopardy action, the IRS must provide notice of intent to levy and a demand. The debtor may request a hearing. But when jeopardy applies, the debtor doesn’t have the right to notice.
The IRS may initiate a jeopardy assessment when a person doesn’t file or pay taxes or when a person understates their tax liability. There must also be a reason to believe the person is actively taking steps to protect their assets from lawful seizure. Within five days of the assessment, the IRS must provide notice of the assessment and an explanation of the right to review. The debtor has the right to appeal the decision for judicial review within 90 days of receiving the results of the administrative review. The question for judicial review is the reasonableness and appropriateness of the jeopardy assessment. The only issue available on appeal is whether the court based the assessment on the reasonableness of the seizure.
What to do if you’re facing a jeopardy tax assessment
Are you facing a jeopardy tax assessment in North Carolina or from the IRS? You can fight the seizure, and you can also fight the underlying tax assessment. You must work quickly. You have only days from the notice of the seizure to fight back. One of the experienced North Carolina attorneys at Wilson Ratledge can help you evaluate your case and pursue all of your options. We can give you advice that’s unique to your situation and help you defend your rights under North Carolina and federal law.