Does a Personal Injury settlement have to be counted as an asset in an Offer in Compromise?

Let’s look at the situation where, except for the settlement, you would be eligible for an Offer In Compromise based on doubt as to collectibility.  In any Offer in Compromise, the IRS will require that you count the settlement as an asset and pay that to the government to retire the taxes.  Our exemption statute protects your personal injury settlement from seizure or judgment, but this does not help for an Offer. In other words, the IRS cannot forcibly take your settlement to pay those back taxes.  However, the IRS takes the position that the Offer program is voluntary and if you ask the IRS to accept less than you owe in full payment, you should “voluntarily” pay the value of all assets available to you, even those that are exempt from forced collection.  Let me hasten to add that there is another kind of Offer that we can pursue under certain circumstances.  I will discuss the possible solution to this dilemma in next week’s blog.