The opinion of the court was delivered by: Clarkson S. Fisher, District Judge.
Before this court is a motion by plaintiff, Elena Zahos Burd,
to deny the United States' motion for summary determination and
in support of plaintiff's motion for summary determination. The
issue presented in this action is whether the Internal Revenue
Service's jeopardy assessment pursuant to 26 U.S.C. § 6862 was
reasonable under the circumstances. For the following reasons,
the court determines that the jeopardy assessment was not
reasonable under the circumstances and, therefore, the
defendants' motion for summary determination is denied and the
plaintiff's motion for summary determination is granted.
Elena Zahos Burd ("plaintiff"), was formerly married to James
Zahos ("Zahos"). Complaint ¶ 6. Plaintiff and Zahos filed a
1987 joint federal income tax return. Id. at ¶ 6. In 1988,
plaintiff filed a "married filing separately" federal income
tax return. Id. at ¶ 7. On June 5, 1991, the Internal Revenue
Service ("IRS") made a "jeopardy assessment" against the
plaintiff of $26,900.52 for the tax year 1987. Id. at ¶ 9.
Additionally, that same day, the IRS made a "jeopardy
assessment" against the plaintiff for $3,072.73 for the tax
Also, on June 5, 1991, the IRS made a "jeopardy assessment" of
$18,262.00 against the plaintiff based on transactions
conducted between plaintiff as transferee and Zahos Pools, Inc.
as transferor for the taxable years 1987 and 1988. Complaint ¶
11. Zahos was a 98% shareholder of Zahos Pools, Inc. Plaintiff
Aff. ¶ 9. Plaintiff was a 1% shareholder in the corporation.
Id. The other 1% belonged to the incorporating attorney.
Id. All of the foregoing tax assessments were made by the IRS
pursuant to the recommendations of Agent Elaine During of the
IRS's Newark, New Jersey, office. See Durning Certif. The
recommendations were made by Agent Durning because of certain
information she received during the course of her inquiry into
the corporation's tax liability.
Agent Durning met with plaintiff in June of 1990. At that
meeting plaintiff told Durning that corporate funds were not
used to pay personal expenses but that if a personal check was
unavailable corporate funds might be used to pay personal
expenses and the corporation would be reimbursed. Id. at ¶ 7.
Plaintiff explained that if no reimbursement occurred, the
expenses would not be deducted by the corporation as business
expenses, and a bonus would be declared by the corporation and
reflected on the plaintiff's tax returns. Id. Upon examination
of the corporate records, however, Agent Durning found that for
the years 1987 and 1988 plaintiff used corporate funds to pay
personal expenses, plaintiff did not reimburse the corporation,
the corporation deducted the expenses as business expenses and
plaintiff never declared a bonus on her tax returns. Id. The
amount of the tax liability is not an issue before this court.
In September of 1990, a divorce decree was entered in the
Superior Court of New Jersey, Family Part, Hunterdon County,
between plaintiff and Zahos. Pursuant to the divorce decree,
plaintiff was awarded the Zahos' marital home. Id. at ¶ 11. In
November of 1990, Zahos informed Agent Durning that the
plaintiff had listed the house for sale and that plaintiff was
planning on moving to Japan to live with her brother. Id. at ¶
12. Agent Durning confirmed that the house was on the market
but did not attempt to ascertain whether
plaintiff was planning on moving to Japan. On April 29, 1990,
Agent Durning learned that the plaintiff's house, her "only
known asset" would be sold for the purchase price of $395,000.
Id. at 13. Agent Durning states:
Since Elena Zahos was about to convert her only known asset
(her house) to cash (there was no indication that the proceeds
from the sale would be converted into something other than
cash) and quite possibly move to Japan, I determined that
collection of the taxpayers deficiencies would be in jeopardy
if there was not an immediate assessment, especially in light
of Ms. Zahos' history of participation in, and having knowledge
about, the diversion of corporate assets and use of corporate
funds to pay personal expenses.
Based on this information, Agent Durning determined that a
jeopardy assessment under 26 U.S.C. § 6861 was necessary.
Durning Certif. at ¶ 15. The District Director approved this
recommendation on June 4, 1991. Id. at ¶ 16. On June 5, 1991,
the IRS sent plaintiff a Notice of Jeopardy Assessment and
Right of Appeal. Id. at 17. On June 6, 1991, one day after
the jeopardy assessment was made against plaintiff, plaintiff
conveyed to her daughter Christine DeFino title to her house
for $345,000. Id. at ¶ 18. On June 17, 1991, Agent Durning
learned that the property was conveyed by her daughter to a
third party. Id.
Generally, if the IRS makes a determination that a tax is due
to the United States Government by a taxpayer, it may make an
assessment as to the amount owed and bring an action to collect
that amount. Under normal assessment procedure, there is
usually a considerable lapse of time between a taxpayer's first
notice that the IRS is seeking to collect the tax and the
actual enforced collection of the tax. This is due in part to
the taxpayer's right to contest, in the United States Tax
Court, whether a tax is owed and the amount of the tax owed.
When the IRS, however, determines that the collection of a tax
may be in jeopardy, it may forego the normal time-consuming
collection process and immediately assess and collect the tax
by way of a jeopardy assessment procedure provided for in
26 U.S.C. § 6862. Under the statute if the IRS determines that the
assessment or collection of the tax would be jeopardized by
delay, the IRS is authorized to immediately assess and levy
upon the taxpayer's property. The taxpayer then is forced to
litigate the merits of the assessment and the amount of such
assessment after the tax has already been collected.
Realizing the drastic nature of this proceeding, Congress
concluded that the taxpayer should be able to obtain immediate
judicial review of the propriety of the jeopardy assessment.
26 U.S.C. § 7429. Section 7429 empowers the taxpayer to bring an
action in the district court for review of the IRS's
determination. The district court will make de novo
determinations as to whether the IRS's making of the jeopardy
assessment was reasonable under the circumstances, and whether
the amount assessed is appropriate under the circumstances. The
government bears the burden of proving the reasonableness of
the jeopardy determination and the plaintiff bears the burden
of proof as to the amount of such determination. 26 U.S.C. § 7429(g).
In this case, the plaintiff does not challenge the amount of
the assessment, and the court is precluded from addressing the
merits of the tax liabilities owed by the plaintiff. Therefore,
the only issue presented is whether the IRS's jeopardy
assessments were reasonable under the circumstances. It should
be noted that the IRS must show by a preponderance of the
evidence presented to the court that the assessment was
reasonable under the circumstances. Northeast Chemical, Inc.
v. I.R.S., Dept. of Treasury, 48 A.F.T.R.2d 81-5801 (W.D.N Y
1981). Because the IRS has not carried its burden, and because
the plaintiff has demonstrated that the IRS's actions were not
reasonable under all of the circumstances of this case, the
plaintiff's motion for summary determination is granted, and
the defendant's motion for summary determination is denied.
In assessing the reasonableness of the IRS's actions, the Court
is not limited to consideration of the information available to
the IRS at the time of the assessment but must also consider
any subsequently available information that might impact of the
reasonableness of the determinations. "[A]ny relevant
information should be considered." Loretto v. United States,
440 F. Supp. 1168, 1173 (E.D.Pa. 1977). Additionally, the court
may evaluate evidence that would ...