Dissipated Assets can Kill your Offer-in-Compromise

I represent taxpayers in Gainesville and the state of Florida who have tax issues with the IRS. You do the many hours of work to produce an Offer-in-Compromise that shows it is in the Governments best interest to accept 50% on the dollar. You then submit it and after waiting for months the IRS finally responds with a counteroffer that is $20,000 higher. Their reasoning – they added an amount for Dissipated Assets. What the heck is a Dissipated Asset?

It turns out that part of the IRS process when evaluating an Offer-in-Compromise is to look back at your last three years of tax returns, specifically at Schedule D and Form 4797 where you reported sales of assets. There they found a big sale of stock that after taxes netted you $20,000. But you did not pay it over to them. Instead, you paid off some loans from relatives or took a great vacation. Now they want that money plus your Offer.

The moral of the story? Always look back before mailing an Offer-in-Compromise. Maybe that sale was on the earliest return and waiting a year to make the offer is possible. Another strategy is that if you owe the IRS and have a big sale that nets cash, make sure you spend it on an “allowable expense”. Allowable expenses are housing, food, medical expenses, not vacations and personal loans. Paying down a credit card debt is not an allowable expense unless the underlying charge can be categorized as such.

If you or someone you know has received a Notice of Intent to Levy or some other federal or state tax issue, please feel free to contact me at either (352) 317-5692 or email jim@backoffice2.net.