What is a Dissipated Asset

When negotiating an Offer in Compromise with the IRS, they will often say that you have a dissipated asset and they add the value of that asset (usually cash) to the amount that you have offered.  A Dissipated Asset occurs when (1) you have delinquent taxes and (2) you obtain a sum of money from any source and (3) you spend that money on something other than the delinquent taxes.

 

 

The IRS says that the amount of the Dissipated Asset must be included in your Offer even though you no longer have it.  An example is when you take money out of a retirement account or borrow from the cash value of life insurance.

About the only way to overcome the assumption that you still have this “virtual” money  is to show that the amount spent was on necessary living expenses as opposed to something frivolous.   What would be a reasonable “necessary living expense”?  A good example is taking money out of your IRA to catch up a mortgage and keep your home out of foreclosure.

Although you did not pay the money to the IRS, you did use it to preserve an asset out of which the IRS might get equity at some point.  The IRS does not care that you no longer actually have the money, but only that you possessed it long enough to spend it on something other than taxes.