Today I want to discuss an alternate type of Offer in Compromise that might work for a taxpayer who has suddenly acquired liquid assets such as a personal injury settlement.  The goal is to protect this settlement from the IRS and not have to include it in an Offer in Compromise.  The solution I am

 

 

referring to is 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. 

If, for instance, the taxpayer was severely injured and is now disabled and must depend on this settlement to live the remainder of his life, the IRS will consider accepting a reasonable amount, based on his other assets and income, 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. One example is when one elderly spouse dies and leave assets to the other.  The surviving spouse can show that these assets are needed to keep him or her in a basic reasonable lifestyle.

This type of Offer can be used even if the taxpayer already has assets greater in value than what he owes.  It is usually used with elderly or disabled taxpayers and can be very successful.