Successful Offer in Compromise: How Dissipated Assets Effect an Offer in Compromise
One of the best known programs of the IRS is the Offer in Compromise. After recent changes to the program, it is now one of the most prevalent optio...
One of the best known programs of the IRS is the Offer in Compromise. After recent changes to the program, it is now one of the most prevalent options taxpayers choose to resolve their tax debt, most likely because it allows an individual to settle their tax liability, in some cases, for less than the full amount of the liability. The program is designed to assure, from the IRS’ standpoint, that an individual is responsibly paying the maximum amount that they can pay toward the tax liability, allowing more people to endure the collections process relatively unscathed. The Offer in Compromise is, on the other hand, a great choice for taxpayers because they can take control of their tax debt and spend less than the full amount of the deficit.
Prior to acceptance, the Offer undergoes an investigative process that involves the taxpayer’s history and financial records. In some cases, the IRS will reject an Offer on the grounds of a dissipated asset, which incurs when a taxpayer liquidates or transfers an asset after the accrual of the initial tax liability. An asset becomes dissipated if either transferred, gifted, sold, or spent on objects deemed unnecessary, such that the individual with tax liability cannot use it to pay off their tax debt. Retirement accounts, funds gained from the sale of a home or a refinance, as well as inheritance funds are some of the most common dissipated assets.
In the event that the funds were used to address necessities healthcare being one of these, or a portion of the funds gained from the asset, IRS may agree to reduce or negate the dissipated asset from consideration.