In a recent case “Samuel v. Commmissioner of Internal Revenue Service, No. 8431-05L (U.S.T.C. 10/15/2007) (U.S.T.C.
2007)” the taxpayer who was a doctor, was sent a final notice of intent to levy by the IRS.
He requested a “due process hearing”, and then filed an offer-in-compromise.
At a meeting with IRS appeals, he disclosed that he had recently sold his interest in a medical center, for $108,000 and used the funds to pay legal fees back business expenses including taxes, and family support debts.
The IRS rejected his offer, primarily on the ground that the value of the dissipated funds should be included in the offer.
The Tax Court acknowledged that the IRS Manual provides, under the right circumstances, that the value of dissipated assets may be a factor in calculating an acceptible offer, the Court observed “It is not totally clear how dissipated assets can be ‘no longer available to pay the tax liability’ while at the same time included in the ‘reasonable collection potential calculation.’”
The Court then examined what the taxpayer represented he had spent the proceeds on, and which the IRS did not acknowledge. The Court held it was an abuse of discretion for Appeals to not deduct from the figure for dissipated funds, his payments for estimated taxes, payments made in connection with a civil lawsuit the taxpayer was engaged in, and amounts paid for delinquent child support. Noting that the liquidation value of the taxpayer’s medical practice was negligible, and there was no equity in his residence, the Court found that the demand by the IRS should be based primarily on his income, rather than the value of the dissipated assets.
It is clear from these types of stories that the IRS does what it can to reject an offer. They can be very complicated and therefore, anyone with serious tax debt should speak to an experienced attorney before proceeding.
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