Are Offers in Compromise affected by after-acquired assets?

If one acquires a large sum of money after filing an Offer In Compromise, how will it affect his Offer?  After an Offer is filed, the IRS will require updates on all assets, income and expenses throughout the negotiation process.  Since the Offer process normally takes eight months to a year to complete, economic conditions sometimes change for the taxpayer.

 

 

If they change for the better, such as when the taxpayer receives a personal injury settlement or workers compensation award, it can mean that the Offer amount must be increased or the Offer might have to be abandoned.  The IRS will require that the settlement or other windfall be counted as an asset and it must be paid to the government as part of the Offer or to retire the taxes.

The South Carolina (and most states’) exemption statutes protects a personal injury settlement from seizure or judgment, but this does not help for an Offer.  In other words, the IRS cannot forcibly take a settlement to pay those back taxes.  However, the IRS takes the position that the Offer program is voluntary and if the IRS is asked to accept less than is owed in full payment, one should “voluntarily” pay all assets available, even those that are exempt from forced collection.

Let me hasten to add that one should not give up hope yet.  There is another kind of Offer that can be pursued under certain circumstances.  I will discuss the possible solution to a dilemma such as this in another blog.