28 Jun Summary, Deficiency and Jeopardy IRS Assessments
Collection of federal taxes starts with an assessment of tax due. The assessment serves two functions.
- It is the government’s mechanism for keeping records and recording a liability.
- The assessment, authorizing the government to collect, is equivalent to the final judgment that a general creditor must obtain to collect a debt.
The IRS makes assessments in a variety of ways and times depending on what prompts it. The Service makes summary or automatic assessments of tax when a taxpayer files a return showing a tax liability, or submits payment.I.R.C. §§ 6201(a)(1), 6213(b)(4). The taxpayer consents to the Service assessment of the amount shown on his return through his submission thereof. If there is a balance due after the making of an assessment, the Service will mail a notice to that effect. The Service also makes a summary assessment when it records most penalties, especially those calculated from the information voluntarily supplied on the tax return. I.R.C. § 6665. For example, if a taxpayer files a return two months late reflecting a balance due of $10,000 tax, the Service, without examining the return, can and will automatically assess the $10,000 and a late filing penalty, and send the taxpayer a notice requesting payment. This too will generate a balance due notice.
Deficiency assessments arise only after a lengthy process of administrative and judicial determination of a taxpayer’s correct liability that begins with the Service examining a tax return (or filing one on behalf of a delinquent taxpayer) and ends with a settlement between the parties or a decision of the court. I.R.C. § 6211 et seq. The process is marked by notices called 30-day letters or a 90-day Notice of Deficiency. As deficiencies are not self-determined, as the tax on a return is, the government may not assess, and therefore may not begin to collect, the amount asserted by the government until the matter is finalized.
In rare cases, the Service can also make termination or jeopardy assessments of any tax due if the government believes collection of the tax is in jeopardy (e.g., government believes the taxpayer is planning to flee the country).I.R.C. §§ 6851, 6861. When the government believes a jeopardy situation exists, Congress has given special permission for the Service to discard the normal pre-assessment and pre-collection procedural safeguards. Instead, the government may assess and collect tax in an expedited manner, and the taxpayer can only challenge the determination of the existence of a jeopardy situation (see I.R.C. § 7429) and of the underlying tax liability afterwards. I.R.C.§§ 6851(b), 6861(b).
Termination and jeopardy assessment rarely occur because the facts necessary to override the normal procedural safeguards prior to assessment are not normally present.