Dissipated Asset No Longer the Barrier it Once Was

image via gpstracklog.com

Thanks to the IRS’ Fresh Start program, more people meet the criteria for an Offer in Compromise these days than quite possibly ever before. Many of the requirements have been modified in determining a taxpayer’s reasonable collection potential (RCP), one of them being the way the IRS deals with dissipated assets.

Formerly:  A dissipated asset usually consisted of property that was sold or distributions that were taken, sometimes years before the OIC filing date.  If the transaction occured after the tax was assessed and the money was used for anything other than paying down the back tax debt, then an amount equal to what was received would be automatically added to the taxpayer’s reasonable collection potential, even if the money was long gone.  The burden was on the taxpayer to avoid inclusion of a dissipated asset by showing that the funds were spent on the necessities of life and not on a ski boat.

Currently:  Inclusion of dissipated assets in RCP is no longer applicable, unless it can be shown (presumably by the IRS) that the funds were spent on a ski boat or other unnecessary items, or that the funds were intentionally pissed away in an effort to avoid having to pay the IRS.  It now appears that the burden is on the IRS to substantiate their hunches whereas before there was a presumption that the taxpayer was purposefully avoiding payment to the IRS.