Legal Definitions - jeopardy assessment

A jeopardy assessment is an extraordinary measure taken by a tax authority when it believes that the collection of taxes owed by an individual or business is at immediate risk of being lost or significantly hindered if they wait for the normal tax assessment process. This allows the authority to quickly determine and demand payment of taxes to prevent assets from being hidden, moved, or destroyed before the government can secure its claim.

Here are some examples illustrating a jeopardy assessment:

• Example 1: Individual Fleeing the Country

  An individual, Mr. Henderson, was under investigation for failing to report substantial income from an overseas business venture. Tax authorities discovered that Mr. Henderson had purchased a one-way international flight ticket, was rapidly selling off his properties, and had begun transferring large sums of money to bank accounts in a country with no tax treaty. Believing that Mr. Henderson intended to leave the country permanently to avoid his tax obligations, the tax agency issued a jeopardy assessment. This allowed them to immediately calculate the estimated taxes owed and demand payment or seize available assets before he could depart.

  This illustrates a jeopardy assessment because the tax authority acted quickly to prevent the taxpayer from removing assets and fleeing their tax liability, which would have made collection impossible through normal procedures.

• Example 2: Business Rapidly Liquidating Assets

  A construction company, facing severe financial difficulties and allegations of fraudulent accounting, began to sell off its heavy machinery, vehicles, and real estate at significantly undervalued prices to shell corporations. The tax authority suspected that the company was attempting to liquidate its assets and transfer the proceeds out of reach to avoid paying substantial corporate income taxes and payroll taxes before declaring bankruptcy. To protect the government's ability to collect these taxes, the tax agency initiated a jeopardy assessment, immediately demanding the estimated taxes due from the remaining assets.

  This demonstrates a jeopardy assessment because the tax authority intervened to secure potential tax revenue from a business that was actively disposing of its assets in a manner that suggested an intent to evade tax collection.

• Example 3: Criminal Enterprise and Illicit Gains

  Following a major law enforcement operation that dismantled a large-scale illegal gambling ring, investigators uncovered evidence that the ringleaders had amassed millions of dollars in untaxed income. Authorities learned that associates of the arrested individuals were attempting to quickly move or hide the illicit funds and properties before they could be seized. To ensure that the government could collect taxes on these illegal earnings, the tax agency issued a jeopardy assessment, allowing them to immediately assess and claim the estimated taxes owed on the illicit gains before the assets could disappear.

  This example shows a jeopardy assessment being used to prevent the dissipation of assets derived from illegal activities, ensuring that the government can collect taxes on those earnings before they are hidden or transferred beyond reach.