Understanding IRS Jeopardy Levies and How to Respond

In most cases, the IRS has to give 30 days of notice before levying a taxpayer’s assets to cover their tax liability. But a jeopardy levy is significantly different; no advance notice is required, as this type of levy allows the IRS to protect its ability to collect when that ability is in danger. 

For example, if the IRS believes that you may flee the country or transfer your assets, they can use a jeopardy levy to seize your assets without warning.

Note that a jeopardy levy is different from the phrasing you’ll commonly find on notices, “account is in jeopardy of lien or levy.” If your account is the target of a jeopardy levy, that is an entirely different situation; this phrasing generally refers to standard liens or levies. Learn more about what jeopardy levies are, when you’re at risk, and how to respond.

Key Takeaways

• The IRS typically must provide a 30-day notice before levying a taxpayer’s assets.
• A jeopardy levy allows the IRS to seize assets without notice and notify the taxpayer after the fact.
• Jeopardy levies are reserved for situations where the IRS believes it may not be able to collect the taxes because the taxpayer is liquidating assets, transferring assets, or preparing to leave the country.
• You have the right to an appeal, but you must exercise it within 30 days of the notice you receive.

What Triggers a Jeopardy Levy?

The IRS uses jeopardy levies in cases where there is a legitimate threat to the IRS’s ability to collect tax. This can apply if the IRS has a credible reason to believe that a taxpayer plans to:

• Hide or transfer assets in a way that leaves the IRS unable to seize them
• Flee the country with their assets
• Move assets abroad out of the jurisdiction of the IRS
• Liquidate assets or transfer funds so they can’t be seized by the IRS
• Take any other actions that would leave the IRS unable to collect what they are owed

This is not an exhaustive list – If the circumstances are such that the IRS genuinely believes collection is at imminent risk, then the situation may meet the requirements for a jeopardy levy.

How a Jeopardy Levy Works

When the IRS decides to move forward with a jeopardy levy, they can take action immediately. In the case of a standard levy, the IRS must notify the taxpayer via certified mail, typically via LT11 or Letter 1058. These final intent to levy letters inform the taxpayer of the imminent threat of levy and alert them to their right to appeal. In the case of a jeopardy levy, the IRS believes that notifying the taxpayer in this way would leave them unable to collect their debt.

To enforce a jeopardy levy, the IRS automatically freezes the assets. Per the Internal Revenue Code, within five days of initiating a jeopardy levy, the IRS must provide a taxpayer with a written statement of the information used to determine that a jeopardy levy is necessary. Within 30 days of the written statement being provided to the taxpayer, the taxpayer may ask the IRS to review the levy.

At that point, the tax official assigned to the case will determine, based upon the totality of the circumstances, whether or not the IRS’s decision to pursue a jeopardy levy was reasonable. If it was reasonable, the IRS may move forward with levying the frozen assets. If it is deemed unreasonable, the IRS must then release the levy. 

Assets Held by Third Parties

Due to the speed with which a jeopardy levy happens, it is possible for jointly held assets to get caught up in the seizure of property. This includes bank accounts or real property that a taxpayer owns with another party who does not have a tax debt.

Furthermore, assets owned by third parties could be at risk of levy if the IRS suspects that the taxpayer in question fraudulently transferred those assets in an effort to avoid seizure. Levies on jointly owned property can get very complicated to deal with – to protect yourself, contact an experienced tax resolution professional today. 

Consequences of a Jeopardy Levy

Even a standard levy can have an immediate negative effect on your finances. However, a jeopardy levy’s effects are even more severe. The freezing of a taxpayer’s bank accounts can leave them unable to pay bills, pay for necessities for themselves or their family, or otherwise meet their daily obligations. 

The seizure of wages, property, and business assets can also interfere with a taxpayer’s ability to earn a living. For example, if the IRS freezes business bank accounts and assets, a business owner may be unable to pay their employees’ wages. This would likely result in wage claims, an inability to pay vendors, and the forced closure of the business.

It’s true that a taxpayer can appeal the levy and fight to have their assets returned to them, but in the meantime, they can be left in a grave financial situation.

Legal Rights and Appeal Options

Under the Internal Revenue Code, taxpayers have substantial legal rights after a jeopardy levy. These rights are generally outlined in the Notice of Jeopardy Levy and Right of Appeal, which is sent to the taxpayer after the levy is put in place. You have a right to request an administrative review of the levy. This involves submitting a written protest to the District Director within 30 days of the date of the letter.

You may also request a Collection Due Process hearing with the IRS Office of Appeals. This request must be submitted in writing with Form 12153 to the District Director within 30 days.

Finally, after requesting an administrative review, you also have the right to request a judicial review of whether or not the determination that collection was in jeopardy was reasonable. This requires you to file a civil suit against the U.S. in the appropriate District Court. Once your appeal reaches this stage, the determination made by the court is final and not reviewable by any other court.

Strategies to Avoid a Jeopardy Levy

Jeopardy levies are fairly rare and require a significant burden of proof on the part of the IRS, so you can generally avoid them with some foresight and communication with the IRS.

First, and most obviously, file and pay your taxes on time. Even if you cannot pay in full (or at all), it is still better to file your returns. This minimizes your penalties and shows the IRS that you are not attempting to completely evade your responsibilities as a taxpayer.

If you cannot pay in full, take prompt action to set up other arrangements with the IRS. In many cases, jeopardy levies occur because a taxpayer is intentionally dodging contact with the IRS. If the IRS has not heard from you despite multiple notices, they have no way of knowing whether or not you are working on addressing your tax debt.

There are various payment options for those who cannot pay their tax debt in full. Consider talking to a tax professional about an installment agreement, offer in compromise, or currently not collectible status if you need alternative solutions.

Finally, don’t try to avoid the effects of a levy by hiding or disposing of assets by transferring them to other people. A levy is generally a last resort for the IRS, and you may be able to avoid it simply by communicating with them and working towards paying off your tax debt.

Seeking Professional Help to Address a Jeopardy Levy

When your tax debt is more than you can handle on your own and you find yourself dreading opening your mail due to tax notices, it may be time to talk to a tax professional. This is particularly true if you have been avoiding your tax debt for a long time—the longer your debt goes unpaid, the more likely it is that the IRS will levy your assets.

If you’ve been hit with a jeopardy levy, know that you have appeal options. However, you have to move quickly to protect them. We can help you appeal the levy, work to get your assets returned to you and negotiate with the IRS on your behalf.

Let’s talk about your tax situation and how we can best help you. Call W Tax Group at 877-500-4930 or reach out online to schedule your free tax relief consultation.

Frequently Asked Questions

What is a jeopardy levy and what makes it different from a regular levy?

A jeopardy levy is a way to seize a taxpayer’s assets without going through the legally required 30-day notice period. It’s used in very rare circumstances where the IRS believes that the 30-day waiting period would mean losing their ability to recover what they are owed. 

Under what circumstances will the IRS issue a jeopardy levy?

The IRS will only issue a jeopardy levy if they have genuine reason to believe that their ability to collect is in danger. For example, if a taxpayer is preparing to flee the country to avoid paying taxes or has started rapidly selling off their assets, this may indicate that there will soon be nothing left to levy.

Can the IRS seize my assets without notifying me first?

The IRS can only seize a taxpayer’s assets without notice if they can prove that their ability to collect is in imminent danger. This way of seizing assets called a jeopardy levy, is rare.

What can I do if I receive a jeopardy levy notice?

By the time you receive a jeopardy levy notice, your assets have already been frozen and you must take action quickly. You only have 30 days to appeal the IRS’s actions, so you should consult a tax attorney immediately to figure out your next steps.

Can I avoid a jeopardy levy by negotiating with the IRS?

Yes. If you are willing to pay your tax debt but you cannot pay in full, the IRS would still rather collect what they are due via an installment agreement or offer in compromise. A jeopardy levy is a very last resort reserved for cases where a taxpayer is actively attempting to escape their tax obligations.

Do I need a tax attorney to handle a jeopardy levy situation?

Jeopardy levies are a complicated area of tax law, especially because they pose an immediate risk to a taxpayer’s financial stability and ability to provide for themselves. Working with a tax attorney gives you a fair shot at gaining access to your assets and avoiding a levy.

I received a notice that said my account is “in jeopardy of lien or levy.” Does this mean the IRS is pursuing a jeopardy levy?

No. Although the language may be confusing, the phrase “in jeopardy of lien or levy” simply means that the IRS may use a lien or levy to recover what they are owed if you continue to ignore their notices. It is not referring to a jeopardy levy.

Sources:
https://www.irs.gov/pub/irs-drop/jeopirm.pdf
https://www.irs.gov/irm/part5/irm_05-011-003
https://www.law.cornell.edu/uscode/text/26/7429