Is a Personal Injury settlement subject to payment in an Offer in Compromise – Part 2?

To reiterate from my last blog, even though the personal injury settlement is exempt from forced collection by the IRS or other judgment creditors, the IRS expects the taxpayer to include that money in an Offer since the Offer program is voluntary.   Today I want to discuss an alternate type of Offer that might work for an injured taxpayer.  I am referring to the Offer based on Effective Tax Administration.  It is appropriate when the taxpayer has the funds or assets to pay the amount owed, but for public policy reasons, the IRS will accept less than the full amount.  In the case of a taxpayer who is severely injured and is now disabled and must depend on this settlement to live the remainder of his life, we might convince the IRS to accept a reasonable amount in the Offer to keep the taxpayer from becoming a welfare citizen.  In other words, his money would be better spent on maintaining him rather than paying off the old tax debt.  Of course, reasons other than disability might validate such an Offer also, such as old age, mental disability or other medical problems.