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Part 4. Examining Process

Chapter 15. Jeopardy/Termination Assessments

Section 2. Examination Procedures

4.15.2  Examination Procedures

4.15.2.1  (06-30-1999)
Overview

  1. This section provides guidelines for the identification, assignment, development and recommendation of jeopardy/termination assessments.

4.15.2.2  (06-30-1999)
Jeopardy/Termination Coordinator

  1. Each area director will appoint a Jeopardy/Termination Coordinator to control jeopardy/termination assessments.

  2. The Coordinator will be responsible for the following:

    1. Reviewing possible jeopardy/termination assessment cases to determine if a case meets jeopardy/termination criteria;

    2. Contacting and coordinating with other functions regarding the possible jeopardy/termination;

    3. Assigning an examiner to prepare a jeopardy/termination case;

    4. Controlling a jeopardy/termination; and

    5. Following-up on jeopardy/termination cases.

4.15.2.2.1  (06-30-1999)
Reviewing Cases

  1. The coordinator will review all cases that are forwarded to him/her to determine if the case meets the criteria for a jeopardy/termination assessment.

4.15.2.2.2  (06-30-1999)
Contact and Coordination

  1. The coordinator will contact and coordinate with other functions regarding jeopardy/terminations under Exam responsibility.

    Note:

    Technical Support Manager has overall responsibility for liaison between Exam, Collection, Cl, TE/GE, Appeals, and Counsel. Responsible Service employees must keep Technical Support informed of the status of a jeopardy/termination case. The Technical Support Manager's responsibility is strictly liaison; the responsibility for taking necessary actions on any jeopardy/termination assessment cases remains with the function having jurisdiction for taking the required actions.

  2. The coordinator will contact other functions to determine if the taxpayer is under active consideration by another function or operating division.

  3. The coordinator will inform other functions that a possible jeopardy/termination is in progress.

    1. Contact Counsel to discuss the possible jeopardy/termination assessment. Counsel must approve in writing whether there should be a jeopardy/termination.

    2. Notify the Case Processing Support Manager that a potential jeopardy/termination assessment case is underway. Provide Case Processing Support Manager with a tentative target date for assessment purposes and with the number of entities and tax periods involved.

    3. Inform the Field Territory Manager of the possible jeopardy/termination.

4.15.2.2.3  (06-30-1999)
Assignment of Examiner

  1. The coordinator will arrange to have an examiner assigned to prepare the jeopardy/termination case. The coordinator will contact the group manager to request an examiner. The group manager will assign the examiner. The group manager will provide the coordinator with the name of the examiner who will prepare the jeopardy/termination case.

4.15.2.2.4  (06-30-1999)
Control of the Case

  1. The coordinator will control the jeopardy/termination in order to make sure that the case is developed, prepared, and processed as quickly as possible. The coordinator will make a quarterly review of outstanding Transaction Code (TC) 914 accounts to determine if they are still needed. See IRM 4.15.2.4.1.3.6(2)d for further explanation concerning TC 914s placed on jeopardy/termination assessment cases. Because of the urgency usually involved in jeopardy/termination cases, the case will be given the highest priority of handling within and between the various functions.

4.15.2.2.5  (06-30-1999)
Follow-Up

  1. The coordinator will follow-up on jeopardy/terminations to ensure that the assessment is made promptly and correctly and that all the necessary actions have been taken.

4.15.2.2.5.1  (06-30-1999)
Request for Review

  1. If the taxpayer who is subject of the jeopardy/termination assessment files a request for an administrative review, the coordinator will forward the request to Technical Support. The request is made by the taxpayer after the assessment is made.

4.15.2.2.5.2  (06-30-1999)
Abatement of Assessment

  1. If an abatement is needed, the coordinator will take the appropriate action to have the abatement made. See IRM 4.15.5.2 for abatement procedures.

4.15.2.2.5.3  (06-30-1999)
Notice of Deficiency

  1. The coordinator will ensure that an examination is completed in order for a notice of deficiency to be issued, as required by the jeopardy/termination provisions. The examination file, which includes the jeopardy/termination assessment file, is completed and assembled according to case file assembly procedures in the former IRM 4237(15)00. The completed case will be forwarded to Technical Support for issuance of the required notice of deficiency.

  2. Jeopardy — A notice of deficiency is required to be mailed to the last known address of the taxpayer within 60 days of the date of the assessment. See IRM 4.15.5.5 and IRM 4.15.6.5 for notice of deficiency procedures. An examination of the taxpayer, preparation of the notice of deficiency, and review of the notice by Counsel, will be completed within the 60-day period.

  3. Termination — A notice of deficiency is required to be mailed to the last known address of the taxpayer, for the taxpayer’s full taxable year, within 60 days after the later of:

    1. The due date of the taxpayer’s return for the taxable year, determined with regard to extensions; or

    2. The date the taxpayer files a return for the taxable year.

  4. If the taxpayer does not file a return, the notice of deficiency must be sent within 60 days after the due date of the return. See IRM 4.15.5.5 and IRM 4.15.6.5 for notice of deficiency procedures.

  5. An examination of the taxpayer for the full year, preparation of the notice of deficiency, and review of the notice by Counsel, will be completed within the 60-day period.

  6. The coordinator should receive a termination follow-up file from PSP Support. See IRM 4.15.7.7.

4.15.2.2.5.4  (06-30-1999)
Area Report

  1. The coordinator will prepare the Area Report on Jeopardy and Area Report Termination Assessments for the Field Territory Manager. See IRM 4.15.5.6.

4.15.2.3  (06-30-1999)
Identifying Cases

  1. Employees should be aware of the criteria for jeopardy/termination cases and identify situations where a possible jeopardy/termination may exist.

4.15.2.3.1  (06-30-1999)
Receiving Information

  1. An employee can receive information from many sources, inside the U.S. Government and outside. The employee should try to obtain the necessary information and contact the coordinator.

  2. When an employee receives, from any source, information indicating that a jeopardy/termination situation may exist, the following information should be obtained, if applicable:

    1. Name, including any aliases;

    2. Date of birth, if available;

    3. Address(es);

    4. Taxpayer identification number (TIN); generally, a social security number (SSN) or employer identification number (EIN);

    5. Arrest record; and

    6. Filing history. (Secure AMDISAs, IDRS transcripts, or similar documents such as BMFOLs or IMFOLs, for the last three years.)

  3. If a recommendation for a jeopardy/termination assessment is received from another organizational unit of the Service, the Treasury Department, or Justice Department, the recommendation will be transmitted to the Field Territory Manager or Director, Compliance, who will ascertain the status of the case. If the information shown on the recommendation is too general and vague to support a jeopardy/termination assessment, the recommendation will be assigned to a revenue agent to develop, as expeditiously as possible, the facts necessary for approval or disapproval. Any such oral recommendation received must be confirmed in writing prior to referral to the area director.

  4. The employee receiving the information indicating a possible jeopardy/termination situation, with group manager approval, will contact the coordinator.

4.15.2.4  (06-30-1999)
Assignment of Cases

  1. An examiner will be assigned to prepare the jeopardy/termination case.

4.15.2.4.1  (06-30-1999)
Examiner Responsibilities

  1. The following sections address examiner responsibilities and give detailed instructions. Examiner responsibilities include:

    1. Documenting evidence concerning the conditions making a jeopardy/termination assessment applicable;

    2. Developing the facts to support the jeopardy/termination;

    3. Preparing the report for assessment of the jeopardy/termination;

    4. Preparing the package for approval by the area director;

    5. Securing approval of the jeopardy/termination package by Counsel and the area director; and

    6. Processing the approved jeopardy/termination.

4.15.2.4.1.1  (06-30-1999)
Documenting Conditions

  1. Evidence of meeting conditions for a jeopardy/termination assessment should be developed and documented to the maximum extent. Include indications that collection of tax will be endangered if regular assessment and collection procedures are followed. Include information regarding the taxpayer’s financial condition. All evidence and information should be available for review to determine if the jeopardy/termination is proper under the circumstances.

  2. Flight, concealment/transfer of assets and insolvency should be considered in establishing whether any of the conditions exist for making a jeopardy/termination assessment. Factors listed below, although not all inclusive, should be explored to the extent practicable.

4.15.2.4.1.1.1  (06-30-1999)
Flight

  1. Factors establishing flight include the following considerations.

    1. Is there evidence which would indicate that, if the taxpayer were free on bond, he/she would flee the United States or conceal himself/herself?

    2. What is the taxpayer’s citizenship status? A resident alien? A non-resident alien temporarily in the United States? An illegal alien? If the taxpayer is an alien legally in the United States, would his/her conviction on a specific offense result in his/her deportation?

    3. Does the taxpayer have a passport? If so, is it in his/her name or the name of an alias?

    4. Does the taxpayer have any previous convictions for offenses that would indicate that he/she would flee?

    5. Is the taxpayer wanted by the police as a fugitive from another jurisdiction?

    6. Is there any indication that the taxpayer was about to leave the country, such as airline tickets seized from his/her possession at the time of arrest?

4.15.2.4.1.1.2  (06-30-1999)
Transfer/Concealment of Assets

  1. Factors establishing concealment/transfer of assets include the following considerations.

    1. Does the taxpayer own any fixed assets, or deal solely in cash?

    2. If the taxpayer drives a car, is the car registered in his/her name or is he/she using a nominee?

    3. What are the circumstances concerning the taxpayer’s residence? Is the title in his/her name, or the name of a nominee? If the taxpayer leases, is the lease in his/her name, or that of a nominee?

    4. If the taxpayer was arrested with a large sum of money on his/her person, what are the circumstances concerning the money? Did the money belong to him/her, or to someone else?

    5. Has the taxpayer ever used an alias to conceal his/her identity?

    6. Was there an attempt by the taxpayer, at the time of his/her arrest, to destroy evidence?

4.15.2.4.1.1.3  (06-30-1999)
Insolvency

  1. Factors establishing insolvency include the following considerations.

    1. Are there any Balance Due Accounts (BAL DUEs) open with respect to the taxpayer under his/her name, or any alias he/she may have used in the past?

    2. Did a search of the local court records reveal outstanding judgements against the taxpayer?

    3. Has the taxpayer ever been adjudicated as bankrupt?

  2. Financial solvency of the taxpayer must be threatened or there can be no jeopardy/termination.

4.15.2.4.1.2  (06-30-1999)
Developing the Facts

  1. The examiner should establish, as thoroughly and sufficiently as circumstances permit, a reasonable belief that income has been earned, a tax is or will become due, and the tax will not be collected unless immediate action is taken.

  2. Exclude unlawful wiretap evidence entirely and other tainted or illegally obtained evidence if possible. Consult Counsel if there are doubts as to legality.

  3. When possible, and applicable, the examiner should interview the taxpayer, the arresting officer(s), and other knowledgeable persons such as associates, employers, etc.

    Note:

    If the case has fraud potential, or if the taxpayer is interviewed while in custody, the examiner should not interview the taxpayer without the presence of a special agent. The special agent will advise the taxpayer of his/her constitutional rights.

4.15.2.4.1.2.1  (06-30-1999)
Taxpayer Interview

  1. Interview the taxpayer to afford the taxpayer an opportunity to explain his/her situation and to obtain as much information as possible about the taxpayer. The interview should cover, at a minimum, the following:

    1. Taxpayer’s name, address, taxpayer identification number, and telephone number;

    2. Sources of taxable income;

    3. Taxpayer’s assets (date purchased and cost);

    4. Extent of taxpayer’s liabilities;

    5. Sources of non-taxable income;

    6. Gifts and/or loans made by the taxpayer;

    7. Personal living expenses of the taxpayer (rent, food, etc.);

    8. Amount of money or other assets seized;

    9. Dependents, marital status;

    10. Date of birth; and

    11. Education.

4.15.2.4.1.2.2  (06-30-1999)
Arresting Officer Interview

  1. Interview the arresting officer(s) to obtain the following information.

    1. Specific charges giving rise to the arrest;

    2. Copy of the arrest report, warrant, and all other records seized by the police;

    3. Detailed facts with respect to the money and other assets seized and whether any other party is claiming ownership of the assets seized;

    4. Probability of the taxpayer leaving the country; and

    5. How long the assets will be held by the arresting agency. (Who has possession, his/her telephone number, contact address, etc.)

    Note:

    The examiner should leave his/her name and telephone number and request to be notified if anyone files a claim for the seized assets.

4.15.2.4.1.2.3  (06-30-1999)
Interview of Others

  1. Interview other knowledgeable persons to develop the facts to determine if a jeopardy/termination exists. Such persons include:

    1. Narcotics agents;

    2. Business associates;

    3. Coworkers;

    4. Employers; or

    5. Any other individuals who may have information about the taxpayer or can assist in developing the case.

4.15.2.4.1.2.4  (06-30-1999)
Documenting the Facts

  1. Income from illegal activities, such as narcotics or gambling, should be evidenced by documents. It should also be supported by a professional opinion of a law enforcement officer or other expert with knowledge of the taxpayer’s activity.

  2. The underlying taxable income must be determined in a reasonable manner which does not produce an arbitrary, capricious, or excessive amount under the particular circumstances. The facts must be developed to support the determination that the taxpayer received income as well as the periods when the income was received.

    1. Income Activity — The taxpayer must be involved in an income producing activity. The specific facts must be developed and recorded in order to support that income was received by the taxpayer.

      Example:

      In Rinieri v. Scanlon, 254 F. Supp. 469 (S.D. N.Y. 1966), a revenue agent testified that his only information was that Rinieri, a French citizen, possessed said cash, that it was believed it came from the sale of narcotics, and that he used a cost of living figure of $53,100 in order to produce a tax liability of about the sum of the seized cash. The court granted summary judgement for the taxpayer in his refund suit noting that the government had no proof of earnings within the United States even some four years later. It brushed aside any presumptive evidence of jeopardy with the observation there can be no jeopardy if no taxes are due. The court concluded the government "acted in a fashion which can only be described as arbitrary, capricious, and unconscionable" .

    2. Period(s) Involved — The specific facts must be developed and recorded in order to support that income was received over the period(s) determined. There should be a rational connection between facts known or ascertained and facts presumed or inferred.
      Example 1: In Pizzarello v. United States, 408 F.2d 579 (2nd Cir. 1969), the court concluded that an assessment of some $282,000 in wagering taxes was excessive, arbitrary, and without factual foundation. The amount was determined by projecting the average of waivers received during a 3-day period, over a 5-year period. The government failed to establish that the taxpayer engaged in gambling during the entire 5-year period or that the 3-day average represented average daily business for any other days.
      Example 2: In the refund case of O’Neill v. United States, 198 F. Supp. 367 (E.D. N.Y. 1961), the wagering excise tax for a 16-month period was determined by reference to seized betting slips covering all betting activities during the last month of the period. The agents believed the last month to be the most representative. At trial the fact that the taxpayer engaged in the wagering business throughout the 16-month period was established under collateral estoppel by reference to his conviction, and no evidence controverting the government’s figures was offered.

  3. The tax history of the taxpayer should be verified. Determine if returns for prior years were filed, if there are estimated tax payments or withholding for prior years or the current year, whether the taxpayer under-reported for prior years, and if the taxpayer is current or delinquent in tax obligations. Place the information and analysis in the jeopardy/termination file. Include the following:

    1. AMDISAs for the last three years to determine if any years are under examination;

    2. TRANSCRIPTS for the last three years to reveal the filing history of the taxpayer (BMFOLs and IMFOLs can be used in place of transcripts); and

    3. BRTVUs and RTVUEs for the last three years to uncover types of businesses, income, expenses, deductions, types of returns filed, etc. by the taxpayer.

  4. Case files recommending jeopardy/termination assessments should contain the following information to the extent practicable:

    1. Name, address, and TIN of the taxpayer;

    2. A complete computation of taxable income with all necessary supporting schedules and computations;

    3. Tax and penalty to be assessed by year, quarter, or period;

    4. The nature of the taxpayer’s business or activity;

    5. The taxpayer’s present financial condition;

    6. Information regarding the taxpayer’s activity giving rise to the jeopardy/termination;

    7. Records with respect to continuing business or personal losses;

    8. The taxpayer’s record for resisting payment of taxes in the past, if known;

    9. The nature and location of the taxpayer’s assets and the source of income;

    10. Identity and location of any retirement plan in which the taxpayer participates and in which benefits may be immediately available.

    11. The taxpayer’s filing record; and

    12. Any other information having a bearing on the taxpayer’s financial condition, future prospects for losses, etc.

4.15.2.4.1.3  (06-30-1999)
Preparing the Pre-Approved Report

  1. A pre-approval report will be prepared. If the pre-approval report is accepted, an approval report will be prepared. The approval report is part of the package that is submitted to the area director for personal approval of the jeopardy/termination.

  2. The examiner will prepare a pre-approval report. The coordinator will review the pre-approval report. If the coordinator agrees with the report, the examiner will hand carry the report to the Technical Support Staff for review. If Technical Support concurs, the examiner and/or Technical Support reviewer will hand carry the report to Counsel for review. If Counsel concurs, the pre-approval report will be returned to the examiner for preparation of the approval report.

  3. If the coordinator, Technical Support, or Counsel does not agree with the pre-approval report, the examiner will make the necessary corrections, and resubmit the package for agreement.

  4. If the jeopardy/termination is determined not to exist, a memorandum to the file should be prepared, documenting the reasons for discontinuance. The file, with the memorandum to file, will be returned to the coordinator for recordkeeping.

  5. The pre-approval report will consist of the following:

    1. Pattern letter;

    2. Tax computation;

    3. Narrative;

    4. Copy of return; and

    5. Other information.

4.15.2.4.1.3.1  (06-30-1999)
Pattern Letter

  1. The pattern letter is addressed to the taxpayer at his/her last known address.

    IF the assessment is: THEN use:
    A termination, Letter 1583 (Exhibit 4.15.2–1).
    A jeopardy, Letter 1584 (Exhibit 4.15.2–2).
    A termination possessor of cash, Letter 1929 (Exhibit 4.15.2–3). Following the name line in the address, insert another line: "As Possessor of Certain Cash"
    A jeopardy possessor of cash, Letter 1930 (Exhibit 4.15.2–4). Following the name line in the address, insert another line: "As Possessor of Certain Cash"

4.15.2.4.1.3.2  (06-30-1999)
Tax Computation

  1. The basis on which the taxable income is computed will be stated. Examples are source and application of funds, net worth computation, specific identification, etc. All known assets, liabilities, income, and expenses will be considered. Assets held under IRC 401(a) qualified retirement plans will not be considered unless such amounts are available to the taxpayer. See Exhibit 4.15.2–5 for examples of income computations.

    1. Expenses — A reasonable estimate of expenses will be made if the facts support the estimate. For example, if the taxpayer is in a business where cost of goods sold (COGS) is involved, a reasonable estimate must be made for COGS.

    2. Deductions/Credits — The standard deduction, exemptions, and credits, without proration, are allowed.

    3. Taxes — Self-employment tax, alternative minimum tax, additions to tax for early distributions from certain retirement plans, prohibited transaction excise tax, etc., if applicable, will be asserted.

    4. Possessor of Cash — For assessment purposes, cash or cash equivalent, as defined in IRC 6867(d), will be treated as taxable income and taxed at the highest rate of tax specified in IRC Section 1.

      Note:

      Usually Form 4549–A, or a similar report, is prepared. Attached to the Form 4549–A are schedules detailing tax computations, such as self-employment tax and alternative minimum tax, other schedules showing the computation of penalties, and a schedule showing the interest computation. Include any other necessary schedules such as a net worth computation, if used.

4.15.2.4.1.3.3  (06-30-1999)
Narrative

  1. Prepare a narrative explaining the facts, circumstances, and reason for the assessment. See Exhibit 4.15.2–6.

4.15.2.4.1.3.4  (06-30-1999)
Copy of Return

  1. A copy of the return or substitute for return (SFR) is included in the report. If the return has not been filed, follow SFR procedures and process the original to establish the taxpayer on master file or non-master file so an assessment can be made.

  2. For a jeopardy, if a return has been filed, include a copy. If a return has not been filed, follow SFR procedures. Identify the original SFR as a jeopardy SFR. Process the original using Form 3198, Special Handling Notice. Keep a copy of the SFR for the report.

  3. For a termination, follow SFR procedures. Identify the original SFR as a termination SFR. Process the original using Form 3198. Keep a copy for the report. (An SFR may also be necessary for the full year return if the taxpayer fails to file in termination follow-up action.)

  4. For a possessor of cash (either a jeopardy or termination), create a new taxable entity (dummy file) for the individual who is in physical possession of the cash. All documents requiring entity information must use "(Possessor’s Name) as Possessor of Certain Cash" as the name line. Follow SFR procedures and process the original using Form 3198. Keep a copy of the SFR for the report.

    1. A temporary TIN must be obtained for all assessments made under IRC 6867 irrespective of information indicating the possessor’s personal TIN. The use of the temporary TIN enables separate tax liability treatment for the possessed cash and avoids any effect on the possessor’s personal individual tax liability, which remains separate from the IRC 6867 assessment. Contact Case Processing Support to inform them that a possessor of cash jeopardy/termination assessment is in process and to obtain the temporary TIN.

    2. Jeopardy — A jeopardy possessor of cash entity is established on master file (MF).

    3. Termination — A termination possessor of cash entity is established on non-master file (NMF).

4.15.2.4.1.3.5  (06-30-1999)
Other Information

  1. Include any notes, memorandums of interview, copies of taxpayer’s books and records, records of filing history, copies of arrest reports, documentation of assets, financial statements, or any other records that were obtained or used to develop the case.

4.15.2.4.1.3.6  (06-30-1999)
Approval Report

  1. After the pre-approval report has been accepted, the examiner will prepare the approval report. The approval report is part of the package that will be submitted to the area director and Counsel for approval of the jeopardy/termination.

  2. The approval report will consist of the following items.

    1. Form 2644, Recommendation for Jeopardy or Termination Assessment. A separate Form 2644, in triplicate, will be prepared for each taxpayer in cases involving transferor-transferee liability or assessment of trust fund recovery penalty (TFRP) as provided in IRC 6672. For possessor of cash assessments, the taxpayer’s name will include the words "as Possessor of Certain Cash" following the taxpayer’s name.

    2. Form 2645, Description and Location of Property of Taxpayer, should list all property of which the examiner has knowledge. See Exhibit 4.15.2–7. It provides the service center and Collection with any information on property or distrainable assets belonging to the taxpayer.

    3. Form 3198, Special Handling Notice. Under "Special Handling," check "Process." On the last line, check block "Other" and insert "Assessment made by telephone." For a jeopardy: under "Expedite," check "Other" and insert "Jeopardy assessment of __tax." Include the type of tax, income or other (whichever type is applicable). For a termination, check "Other" and insert "Termination assessment of income tax." In the "Other" section, enter "Do not make refund or post full year return." For a possessor of cash, in the "Other" section, enter "This is an assessment made under the provisions of IRC 6867. Do not merge account for (insert Possessor’s Name) as Possessor of Certain Cash with taxpayer’s personal account."

    4. Form 4135, Criminal Investigation Control Notice. This form places a TC 914 on MF to prevent the posting of the full year return. Place an "X" in the Box "TC 914" . For a termination: Under remarks, indicate "This is a termination assessment of income tax. Do not post full year return. Send any returns received to Field Territory Manager, __Area." For a possessor of cash (either a jeopardy or termination): Under remarks, indicate "This is a jeopardy/termination (choose one) assessment under the provisions of IRC 6867. Do not merge account for (insert Possessor’s Name) as Possessor of Certain Cash with taxpayer’s personal account" . (See IRM 4.15.2.4.1.3.7.)

    5. Form 5345, Examination Request Master File, is prepared for terminations only. Item 1 should reflect source code 60 (to requisition the full-period return for follow-up action). Item 17, "Reason for Request/Related Return," will be completed by the PSP Support Manager. PSP Support will request the return for year-end follow-up action.

    6. Form 5346, Examination Information Report, is prepared for terminations only. On line 22, "Information Obtained," enter "Termination of taxable period."

    7. Pattern letter. See IRM 4.15.2.4.1.3.1.

    8. Tax computation. See IRM 4.15.2.4.1.3.2.

    9. Narrative. See IRM 4.15.2.4.1.3.3.

    10. Copy of Return. See IRM 4.15.2.4.1.3.4.

    11. Other Information. See IRM 4.15.2.4.1.3.5.

    12. Form 6809, Civil Fraud Penalty Monitoring Form. This form is used in cases where the civil fraud penalty is proposed.

4.15.2.4.1.3.7  (06-30-1999)
TC 914 Report

  1. Coordinating with Cl, Exam will make a quarterly review of outstanding TC 914 accounts to determine if they are still needed. The coordinator will be responsible for reviewing outstanding TC 914 accounts for Exam. The coordinator will be responsible for terminating the control if an abatement is required by a decision of the Tax Court or, if no petition is filed with such court, when the period for filing a petition expires. To terminate the control, the coordinator will contact Cl and request removal of the TC 914.

4.15.2.4.1.4  (06-30-1999)
Preparing the Package

  1. After the approval report has been completed, the examiner will prepare the approval package. The package will be submitted to the area director for approval of the jeopardy/termination assessment. The approval package contains six files for a jeopardy assessment (seven files if a termination assessment is involved), and includes the following items. (See Exhibit 4.15.2–8 for contents of each file and distribution of the approval package.)

    1. Form 2644, Recommendation for Jeopardy or Termination Assessment (see Exhibit 4.15.2–9). One original and five (six) copies.

    2. Form 2645, Description and Location of Property of Taxpayer. One original and three (four) copies.

    3. Form 3198, Special Handling Notice. One original and three (four) copies.

    4. Form 4135, Criminal Investigation Control Notice. One original and three (four) copies, if applicable.

    5. Form 5345, Examination Request Master File. One original and three copies, if applicable.

    6. Form 5346, Examination Information Report. One original and three copies, if applicable.

    7. Pattern letter. Three originals and two copies.

    8. Tax computation. One original and five copies.

    9. Narrative. One original and five copies.

    10. Copy of return and three copies.

    11. Other information. One original and two copies.

    12. Form 6809, Civil Fraud Penalty Monitoring Form. Three copies, if applicable.

4.15.2.4.1.5  (06-30-1999)
Securing Approval of the Package

  1. The examiner will hand carry the complete package relating to the proposed jeopardy/termination assessment to the officials listed below, for concurrence or comment, prior to referral to the area director.

    Note:

    The signatures should be secured in the morning. The assessment must be made on the same day that the jeopardy/termination assessment is approved. The information for the assessment needs to be forwarded to the service center from Case Processing Support prior to 1:30 p.m. If the information is not forwarded prior to 1:30 p.m., the assessment generally cannot be made that day.

  2. In an emergency situation, the assessment can be made through other service centers in a different time zone. For example, a jeopardy assessment was made on several related corporations involving three years of corporate income taxes and related payroll taxes for each of the quarters of the three years. Due to the volume, the original service center was unable to assess all the amounts in time. A service center in a later time zone can be contacted to assess the remaining amounts, within the same day the jeopardy assessment is approved.

  3. Function officials listed below must approve the complete package prior to securing approval from the area director. Approval should be in the order shown below:

    1. Technical Support Manager;

    2. Field Territory Manager;

    3. Special Agent in Charge, Cl; and

    4. Counsel. Counsel should sign last, except for the area director. Otherwise, review by other officials may be perfunctory or intimidated by the fact that Counsel has already approved. Each review made should be meaningful.

  4. If any official does not approve, the examiner will make the necessary corrections, and resubmit the package for approval.

  5. If any official does not approve and agreement cannot be reached between the officials, the controversy will be resolved through existing management channels.

  6. After approval is secured from the function officials, the examiner will hand carry the complete package to the area director for approval.

    IF the Area Director: THEN:
    Approves the package, The area director or other delegated official will sign each Form 2644 in the appropriate area and sign each of the appropriate pattern letters.
    Disapproves the package, The examiner will make the necessary corrections and resubmit the package for approval.
    Does not agree with the package, The examiner will prepare a memorandum to the file documenting the reasons for disagreement. The original file, with the memorandum, will be returned to the coordinator for recordkeeping.

4.15.2.4.1.6  (06-30-1999)
Processing After Approval

  1. After the area director has approved the jeopardy/termination, the examiner will hand carry the respective files to Case Processing Support and Collection. The remaining files will be forwarded by the coordinator to the respective functions identified in Exhibit 4.15.2–8.

    1. Delivery to Case Processing Support — The examiner will hand carry the Case Processing Support file to Case Processing Support. The examiner will leave his/her name and telephone number. After the assessment is made, Case Processing Support will return to the examiner a copy of Form 2644 with the DLN and 23C data. The examiner will enter the DLN and 23C data on the remaining Forms 2644. The examiner will then hand carry the Collection file to Collection.

    2. Delivery to Collection — The examiner will hand carry the collection file to Collection. Collection will make provisions for serving the "Written Statement" consisting of the pattern letter, tax computation, and narrative, along with the Notice and Demand to Pay Tax. Collection will make provisions for delivery of the Collection file to the Collection group manager of the applicable geographic area.

    3. Forwarding to Other Functions — The examiner will forward the remaining respective files to Technical Support, Coordinator, Cl, and PSP Support (only if a termination is involved). See Exhibit 4.15.2–8 for contents of each file and distribution of the approval package.

Exhibit 4.15.2-1  (06-30-1999)
Pattern Letter 1583

Department of the Treasury
Internal Revenue Service 		Letter 1583(P)
  Letter Date:
  Taxpayer Identification Number:
AREA DIRECTOR Form:
  Tax Year Ended and Deficiency:
  Person to Contact:
  Telephone Number:
  Employee Identification Number:
  Refer Reply to:
  Last Date to File for Administrative Review:
NOTICE OF TERMINATION ASSESSMENT OF INCOME TAX
Dear Taxpayer:  
 Under section 6851 of the Internal Revenue Code (the Code), you are notified that I have found you are attempting to place your property beyond the reach of the Government by concealing it, thereby tending to impede the collection of income tax for the 1997 taxable year.
 I have found that on December 25, 1997, you were arrested by the xxxx Police Department and charged with possession of illegal narcotics paraphernalia. At the time of your arrest, $239,222 in U.S. currency was seized, which you claimed to be yours. The xxxx Police Department tested the money for traces of narcotics, which proved to be positive.
  A search of the Internal Revenue Service Center records indicates that you have not filed a Federal individual income tax return since 1993. Accordingly, the income tax, as set forth below, is due and payable immediately.
 Taxable Period Tax
 December 31, 1997 $83,626
Based on information available at this time, tax and penalty, if any, reflected in the attached computations, have been assessed.
 This action does not relieve you of the responsibility for filing a return for your usual annual accounting period under section 6012 of the Code. Such return must be filed with the office of the Area Director of the area in which you reside, or the area in which your principal office is located, not with the Internal Revenue Service Center. A copy of this letter should accompany the return so that any amount collected as a result of this termination assessment will be applied against the tax finally determined to be due on your annual return or to be credited or refunded.
 Under section 7429 of the Code, you are entitled to request administrative and judicial reviews of this assessment action.
  For an administrative review, you must file a written protest with the Area Director within 30 days from the date of this letter, requesting a redetermination of whether or not: (1) the making of the assessment is reasonable under the circumstances, and (2) the amount so assessed or demanded as a result of the action is appropriate under the circumstances. When feasible, a conference will be held on an expedite basis by the Area Director of Appeals Office to consider your protest. If you submit information or documentation for the first time at an Appeals conference, the Appeals Office may request comment from the Area Director on such evidence or documents. As indicated above, enforced collection action may proceed during any administrative appeal process unless arrangements are made regarding collection of the amount assessed. To make such arrangements, please contact [INSERT NAME OF REVENUE OFFICER], Revenue Officer, at (nnn) nnn-nnnn. [INSERT PHONE NO.]
 You may request a judicial review of this assessment by bringing a civil suit against the United States in the U.S. District Court in the judicial district in which you reside or in which your principal office is located. However, in order to have this action reviewed by the District Court, you must first request the administrative review explained above. A civil suit must be filed in writing within 90 days after the earlier of: (1) the day the Service notifies you of its decision on your protest, or (2) the 16th day after your protest. The Court will make an early determination of the same points raised in your protest to determine whether the making of the assessment is reasonable under the circumstances and to determine whether the amount assessed or demanded as a result of the action is appropriate under the circumstances. The Court’s determination is final and not reviewable by any other court.
  If you have questions about this letter, you may call or write to the contact person identified on the front of this letter. You also have the right to contact the office of the Taxpayer Advocate. Taxpayer Advocate assistance is not a substitute for established IRS procedures, and it cannot reverse legally correct tax determinations nor extend the fixed time for you to request an administrative review or bring civil suit. The Taxpayer Advocate can, however, see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling. If you want Taxpayer Advocate assistance, call 1–800–nnn–nnnn.
 Thank you for your cooperation.
   
  Sincerely,
   
  NAME OF AREA DIRECTOR
  Area Director
Enclosure:  
Computation  
Narrative  
   
Pattern Letter 1583  

Exhibit 4.15.2-2  (06-30-1999)
Pattern Letter 1584

Department of the Treasury
Internal Revenue Service 		Letter 1584(P)
  Letter Date:
  Taxpayer Identification Number:
AREA DIRECTOR Form:
  Tax Year Ended and Deficiency:
  Person to Contact:
  Telephone Number:
  Employee Identification Number:
  Refer Reply to:
  Last Date to File for Administrative Review:
NOTICE OF JEOPARDY ASSESSMENT AND RIGHT OF APPEAL
Dear Taxpayer:  
  Under section 6861 of the Internal Revenue Code (the Code), you are notified that I have found that you were stopped on December 9, 1997, for a traffic violation. The officer searched your person and vehicle and discovered and seized $21,997. You told the officer the money was from a xxxx. At a later date, you told the Internal Revenue Service that approximately $17,000 of the amount seized was earned from xxxxx xxxx in your father’s xxxx business. You stated approximately $5,000 of the amount seized was given to you by your father to purchase gifts and to give to your father’s brother in xxxx.
  You pled guilty to conspiracy to possess with intent to distribute cocaine and to distribute cocaine in 1998. The co-conspirators provided information to the FBI as to the amount of cocaine you supplied them on a weekly basis.
  A search of public records, as well as your own statements, reveals the cash held by the XX Police is your only asset. A search of the Internal Revenue Service Center records indicates that you have no filing history. The above stated facts thereby tend to jeopardize or prejudice or impede the collection of income tax for the periods of December 31, 1997 and December 31, 1998. Accordingly, based on information available at this time, I have approved assessment of tax and additional amounts determined to be due as reflected in the attached computations:
 Taxable Period Tax Penalty Interest
 December 31, 1997 $3,301 $ 963 $ 862
 December 31, 1998 $4,958 $1,496 $ 692
 Under section 7429 of the Code, you are entitled to request administrative and judicial reviews of this assessment action.
  For an administrative review, you must file a written protest with the Area Director within 30 days from the date of this letter, requesting a redetermination of whether or not: (1) the making of the assessment is reasonable under the circumstances, and (2) the amount so assessed or demanded as a result of the action is appropriate under the circumstances. When feasible, a conference will be held on an expedite basis by the Area Director of Appeals Office to consider your protest. If you submit information or documentation for the first time at an Appeals conference, the Appeals Office may request comment from the Area Director on such evidence or documents. Enforced collection action may proceed during any administrative appeal process unless arrangements are made regarding collection of the amount assessed. To make such arrangements, please contact [INSERT NAME OF REVENUE OFFICER], Revenue Officer, at (nnn) nnn–nnnn. [INSERT PHONE NO.]
  You may request a judicial review of this assessment by bringing a civil suit against the United States in the U.S. District Court in the judicial district in which you reside or in which your principal office is located. However, in order to have this action reviewed by the District Court, you must first request the administrative review explained above. A civil suit must be filed in writing within 90 days after the earlier of: (1) the day the Service notifies you of its decision on your protest, or (2) the 16th day after your protest. The Court will make an early determination of the same points raised in your protest to determine whether the making of the assessment is reasonable under the circumstances and to determine whether the amount assessed or demanded as a result of the action is appropriate under the circumstances. The Court’s determination is final and not reviewable by any other court.
Appeal to the Courts in Case of Income, Estate, Gift, and Certain Excise Taxes
  If an agreement is not reached with the Internal Revenue Service, a notice of deficiency is required by law to be issued within 60 days from the date of jeopardy assessment made under section 6861 of the Code. You then have 90 days (150 days if outside the United States) from the date the notice is mailed to petition the United States Tax Court.
Appeal to Courts in Case of Other Taxes Assessed Under Section 6862 of the Code
  Claim for credit or refund of taxes assessed under section 6862 of the Code may be filed in accordance with section 6511(a) of the Code for administrative and judicial review of the merits of the liability assessed. An administrative decision on the claim may be appealed to the courts under the provisions of section 7422(a) of the Code.
 If you have questions about this letter, you may call or write to the contact person identified on the front of this letter. You also have the right to contact the office of the Taxpayer Advocate. Taxpayer Advocate assistance is not a substitute for established IRS procedures, and it cannot reverse legally correct tax determinations nor extend the fixed time for you to request an administrative review or bring civil suit. The Taxpayer Advocate can, however, see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling. If you want Taxpayer Advocate assistance, call l–800–nnn–nnnn.
 Thank you for your cooperation.
   
  Sincerely,
   
  NAME OF AREA DIRECTOR
  Area Director
Enclosure:  
Computation  
Narrative  
   
Pattern Letter 1584  

Exhibit 4.15.2-3  (06-30-1999)
Pattern Letter 1929

Department of the Treasury
Internal Revenue Service 		Letter 1929(P)
  Letter Date:
  Taxpayer Identification Number:
AREA DIRECTOR Form:
  Tax Year Ended and Deficiency:
  Person to Contact:
As Possessor of Certain Cash Telephone Number:
  Employee Identification Number:
  Refer Reply to:
NOTICE OF TERMINATION ASSESSMENT OF INCOME TAX UNDER IRC 6867
Dear Taxpayer:  
  Under section 6851 and 6867 of the Internal Revenue Code (the Code), you are notified that I have found that the collection of income tax for the period ending December 31, 1997, is jeopardized or impeded for the following reasons.
  On December 21, 1997, you were stopped and questioned by officers of the xxxx Police Department. At the time, it was determined you were under Grand Jury indictment in xxxx County for alleged narcotics violations. At the time of your arrest, $397, 451 in U.S. currency was seized. You were questioned by xxxx Police as to the ownership of the U.S. currency, and the true owner cannot be readily ascertained. Therefore, a termination assessment is recommended against you as possessor of the unclaimed cash.
  Accordingly, the following income tax is computed pursuant to section 6867(b) of the Code as shown in the attached computation and is due and payable immediately from the cash found in your physical possession on December 21, 1997.
 Taxable Period Tax
 December 31, 1997 $135,983
  This notification of termination assessment required under sections 6851(a), 6867(b)(3), and 7429(a)(1) of the Code is being sent to you solely in your capacity as possessor of certain cash in the amount of $397,451 on December 21, 1997.
  This action is independent of and has no effect upon your personal income tax liability for the calendar year 1997. Accordingly, you are not relieved of the responsibility for filing a return for your usual annual accounting period under section 6012 of the Code.
 You are not entitled to request administrative and judicial reviews of this assessment action under section 7429 of the Code.
  If you have questions about this letter, you may call or write to the contact person identified on the front of this letter. You also have the right to contact the office of the Taxpayer Advocate. Taxpayer Advocate assistance is not a substitute for established IRS procedures, and it cannot reverse legally correct tax determinations. The Taxpayer Advocate can, however, see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling. If you want Taxpayer Advocate assistance, call 1–800–nnn–nnnn.
 Thank you for your cooperation.
   
  Sincerely,
   
  NAME OF AREA DIRECTOR
  Area Director
Enclosure:  
Computation  
Narrative  
   
Pattern Letter 1929  

Exhibit 4.15.2-4  (06-30-1999)
Pattern Letter 1930

Department of the Treasury
Internal Revenue Service 		Letter 1930(P)
  Letter Date:
  Taxpayer Identification Number:
AREA DIRECTOR Form:
  Tax Year Ended and Deficiency:
  Person to Contact:
As Possessor of Certain Cash Telephone Number:
  Employee Identification Number:
  Refer Reply to:
NOTICE OF JEOPARDY ASSESSMENT OF INCOME TAX UNDER IRC 6867
Dear Taxpayer:  
  Under section 6861 and 6867 of the Internal Revenue Code (the Code), you are notified that I have found that the collection of income tax for the period ending December 31, 1997, is jeopardized or impeded for the following reasons.
 On December 14, 1998, your residence was searched by officers of the xxxx Police Department. Seized by the xxxx Police Department were numerous guns, a safe, and $671 in U.S. currency. On December 15, 1998, the safe was opened by the xxxx Police and $1,576,000 in U.S. currency was found in the safe. On April 27, 1999, you were questioned by Revenue Agent, NAME, as to whom the cash in the safe belonged. You refused to make a statement, and the true owner cannot be readily ascertained at this time. Therefore, a jeopardy assessment is recommended against you as possessor of the unclaimed cash.
  Accordingly, the following income tax is computed pursuant to section 6867(b) of the Code as shown in the attached computation and is due and payable immediately from the cash found in your physical possession on December 14, 1998.
 Taxable Period Tax Penalty Interest
 December 31, 1997 $603,231 $61,241 $2,953
  This notification of jeopardy assessment required under sections 6861(a), 6867(b)(3), and 7429(a)(1) of the Code is being sent to you solely in your capacity as possessor of certain cash in the amount of $1,576,000 on December 14, 1998.
  You are not entitled to request administrative and judicial reviews of this assessment action under section 7429 of the Code.
  If you have questions about this letter, you may call or write to the contact person identified on the front of this letter. You also have the right to contact the office of the Taxpayer Advocate. Taxpayer Advocate assistance is not a substitute for established IRS procedures, and it cannot reverse legally correct tax determinations nor extend the fixed time for you to request an administrative review or bring civil suit. The Taxpayer Advocate can, however, see that a tax matter that may not have been resolved through normal channels gets prompt and proper handling. If you want Taxpayer Advocate assistance, call 1–800–nnn–nnnn.
 Thank you for your cooperation.
   
  Sincerely,
   
  NAME OF AREA DIRECTOR
  Area Director
Enclosure:  
Computation  
Narrative  
   
Pattern Letter 1930  

Exhibit 4.15.2-5  (06-30-1999)
Examples of Income Computation

Example 1. NET WORTH AND EXPENDITURES METHOD:
    Cost of Drug Habit
  The taxpayer was arrested for possession of narcotics on June 3, 1994. At the time of his/her arrest, he/she had in his/her possession $22,300 in cash, which is now in the possession of the Drug Enforcement Agency (DEA). From local narcotics authorities, it was learned that the taxpayer spends about $100 per day on his/her drug habit. The taxable income is computed as follows:
    Cash on hand when arrested   $ 22,300
    Cost of habit ($100/day x 155 days)   +15,500
    Adjusted Gross Income (AGI)   $ 37,800
    Standard deduction 3,800  
    Exemption 2,450 –6,250
    Taxable income   $31,550
Example 2. NET WORTH AND EXPENDITURES METHOD:
  Cost of Drugs + Cash Seized
  The taxpayer was arrested on August 4, 1994, by a xxxx State police officer and was charged with violation of xxxx narcotics laws. The arresting officer discovered 10 pounds of pure heroin, as well as $112,450 in cash, at the taxpayers residence. The local narcotics authorities stated that the cost of pure heroin was approximately $100,000 per pound. The taxable income is computed as follows:
    Cash on hand when arrested   $ 112,450
    Cost of heroin (10 lbs. x $100,000 per lb.) 1,000,000
    Adjusted Gross Income (AGI)   $1,112,450
    Standard deduction 3,800  
    Exemption (phased out) –0– –3,800
    Taxable income   $1,108,650
Example 3. SOURCE AND APPLICATION OF FUNDS
  The taxpayer was arrested for possession of narcotics on July 27, 1994. At the time of arrest, the taxpayer had on his/her person $24,947 in cash and a small amount of drugs. The taxpayer stated to the xxxx arresting officer that a truck seized was purchased for cash on May 19, 1994 for $16,986. The taxable income is computed as follows:
  Funds applied:    
    Cash on hand increased   $ 24,947
    Purchase of truck   16,986
    Total funds applied   $ 41,933
  Funds provided:    
    Adjusted Gross Income (AGI) $ 41,933
         
  AGI determined   $ 41,933
  Less: Standard deduction $3,800  
    Exemption 2,450 –6,250
  Taxable income   $ 35,683
Example 4. SPECIFIC IDENTIFICATION:
    Sales of Heroin
  It was determined by the DEA that the taxpayer bought and sold three to four kilos of heroin per month. The DEA also stated that the taxpayer, during the current year, had purchased 10 kilos of heroin @ $45,000 per kilo and sold 10 kilos @ $60,000 per kilo. The taxable income is computed as follows:
    Gross sales (10 kilos @ $60,000 per kilo) $ 600,000
    Purchases (10 kilos @ $45,000 per kilo) 450,000
    Net profit $ 150,000
    Self-employment tax deduction – 5,766
    Adjusted Gross Income (AGI) $ 144,234
    Less: Standard deduction $3,800  
     Exemption 1,813 –5,613
    Taxable income   $ 138,621

Exhibit 4.15.2-6  (06-30-1999)
Narrative


You were stopped in [CITY, STATE,] on December 9, 1997, for a traffic violation. A search of your person and vehicle revealed $21,997 in cash. The money was seized by the police department.

At the time of your arrest, the officer questioned you regarding the origin of the money and you stated that the money was from a "pick up" from a xxx xxxx. At a later date, you told the Internal Revenue Service (IRS) that you earned half of the money by working for your father’s xxxx business. The other half was given to you by your father.

You have admitted in the past to taking money out of the country to relatives in xxxx.

Presently, you are serving time in a federal prison for two charges: conspiracy to distribute cocaine and distribution of cocaine.

A search of the Internal Revenue Service Center records in Cincinnati, Ohio, shows no filing history.

Based on the above stated facts, it appears that you have concealed your assets. Therefore, a jeopardy assessment is recommended for the 1997 and 1998 tax years.

Exhibit 4.15.2-7  (06-30-1999)
Form 2645

NAME OF TAXPAYER (Aliases or nicknames) ADDRESS
[Taxpayer’s Name] [Street Address]
[City, State Zip Code]
DESCRIPTION AND LOCATION OF PROPERTY OF TAXPAYER
   
$21,997 in U.S. Currency in the possession of the xxxxx Police Department.
   
   
   
ANY KNOWN SOURCES OF ACTUAL OR POTENTIAL INCOME
   
   
   
   
   
   
   
   
   
U.S. TREASURY DEPARTMENT — INTERNAL REVENUE SERVICE   FORM 2645 (7/59)
LIST OF PROPERTY BELONGING TO TAXPAYER

Exhibit 4.15.2-8  (06-30-1999)
Distribution of Approval Package

A total of 5 files are prepared (6 if termination is involved), and sent to the following:
  1. Technical Support
  2. Examination Jeopardy/Termination Coordinator (Coordinator)
  3. Criminal Investigation (CI)
  4. Case Processing Support
  5. Collection, the Revenue Officer who will assert the levy (RO)
  6. PSP Support only for terminations
CONTENTS OF THE FILES
Item TS Coordinator CI CPS RO PSP1
Form 2644 1 1   Orig, 1 1 1
Form 2645 Orig 1     1 1
Form 3198 1 1   Orig   1
Form 41352 1 1 Orig     1
Form 53451 1 1       Orig
Form 53461 1 1       Orig
Pattern letter Orig 1     2 Orig 1
Tax computation Orig 1   1 2 1
Narrative Orig 1   1 2 1
Copy of return/SFR3 1 1   1   1
Other information Orig 1       1
Form 6809 1 1       1
KEY: Orig denotes the original document and a number (1,2) denotes a copy

____________




____________
1 For terminations only.
2 For assessments where a TC 914 is needed.
3 The original substitute for return (SFR), if applicable, was processed. A copy is retained for the file.

Exhibit 4.15.2-9  (06-30-1999)
Form 2644

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