[1] His family was from Cao Prefecture (曹州, in modern Heze, Shandong), and traced its ancestry to Liu Jiao (劉交), a younger brother of Han dynasty's founder Emperor Gao.
During Emperor Xuanzong's Tianbao era (742–756), Liu became the magistrate of Xia County (夏縣, in modern Yuncheng, Shanxi).
Li Xiyan put Liu in defense of Yuhang Commandery (餘杭, roughly modern Hangzhou, Zhejiang).
In 757, after Li Lin was defeated by other Tang generals, he initially considered attacking Yuhang, but after hearing that Liu was defending it, he changed his mind and fled west.
At a later point, Emperor Suzong recalled him to serve as the governor of Pengyuan Commandery (彭原, roughly modern Qingyang, Gansu).
He later served as the prefect of Hua Prefecture (華州, in modern Weinan, Shaanxi), and then the mayor of Henan Municipality (河南), which encompassed the eastern capital Luoyang.
Liu had already proved his worth by using impressed labor to dredge the long silted-over canal connecting the Huai and Yellow rivers; this project lowered transport costs, relieved food shortages, and increased tax revenues with little government investment.
In 758 Liu created a Salt and Iron Commission whose revenues were particularly important since the central government had lost control of the provinces.
Even better, the revenue originated in the south, where it could be safely used to buy grain to ship to the capital, Chang'an, by river and canal.
[6] By 760, Liu Yan was serving as the mayor of Jingzhao Municipality (京兆), which encompassed Chang'an, when he, because he was believed to be capable in financial matters, was also made the deputy minister of census (戶部侍郎, Hubu Shilang), as well as the special director in charge of finance, minting, and salt and iron monopolies.
In 761, the official Yan Zhuang (嚴莊), who had previously served An but later submitted to Tang, was accused of having secret communications with Shi Chaoyi.
Emperor Daizong recalled Liu Yan to Chang'an to again serve in three posts – deputy minister of census, mayor of Jingzhao Municipality, and special director in charge of finance, minting, salt and iron monopolies, and food shipments.
In 763, while still serving as special director of the various economy-related matters, he was also made the minister of civil service affairs (吏部尚書, Libu Shangshu) and given the designation Tong Zhongshu Menxia Pingzhangshi (同中書門下平章事), making him a chancellor de facto.
In 674, however, he was accused of having close association with the eunuch Cheng Yuanzhen – who had been exceedingly powerful but who had been removed in 763 after he was blamed for not warning Emperor Daizong about a Tufan invasion – and he, along with a colleague who had been hated by other eunuchs for his role in Cheng's downfall, Li Xian, were removed from their chancellor posts, with Liu being made a member of the staff of Li Kuo the Crown Prince.
His liangshuifa (two-tax system) consolidated and collected property and land tax twice-annually which greatly increased state revenue.
He then wrote a detailed report to Yuan Zai,[8] who had become a powerful chancellor by that point, explaining the benefits of the Bian River route.
Emperor Daizong, complimenting him, stated, "You, lord, are my Marquess of Zuan" — comparing him to the great Han dynasty prime minister Xiao He.
At that time, Han Huang was in charge of the financial matters of the western half of the empire (Diwu Qi having been removed from that post in 770).
It was said that he improved the salt monopoly system that Diwu had instituted and increased the earnings tenfold, without any additional impositions on the people.
At that time, there were rumors that Liu had, during Emperor Daizong's reign, suggested to him that he create his favorite concubine, Consort Dugu, empress.
Yang's chancellor colleague Cui Youfu opposed further investigation of Liu Yan, but still, in spring 780, at Yang's suggestion, Liu Yan was stripped of his special director status, and the financial responsibilities were returned to the bureaus under the ministry of census, which had previously been responsible for such matters.
(When his assets were booked in order to be confiscated, it was discovered that Liu had been so honest that as an official that he lacked any real wealth, and those who saw this were further impressed by him.)
Liu Xu, the lead editor of the Old Book of Tang, commented thus about Liu Yan:[8] Throughout the generations, not one of the officials in charge of financial matters would fail to oppress the people to provide for the emperor; to harm others to provide for himself; to change laws to abuse power; and to create hatred to bring disaster to himself.