My client is a near minimum wage food service worker. She lives with her daughter and two grandchildren, in a house she bought, without financing, when she won a legal settlement. The settlement was fully taxable and left her with a tax bill of about $97,000.
My client spent most of the settlement money on necessary and important things, such as support of her family, buying the house, state taxes and the like. However, for whatever reason, she did not pay the federal income tax. By the time the IRS came knocking, the money was spent. The only asset left was the house, the equity in which would just about cover the tax liability.
Her previous representative, who did not have much experience with the IRS, obtained a $500 per month installment agreement. Obviously, my client would go to her grave owing the tax at that rate, and the IRS would revisit the agreement every year or two. But with equity in the house, how could we get the IRS to back off and allow her to keep the house?
What many tax representatives do not know is that the Offer in Compromise is more than just a solution for those who do not have the money to pay their taxes (Inability to Pay). Other grounds that the IRS uses to justify acceptance of an OIC is “Effective Tax Administration” and “Inability to Pay with Special Circumstances.”
We made the argument that although the equity in the house allowed payment of the tax, requiring my client to sell the house and pay over the proceeds, or to finance the house and pay a mortgage, would leave her and her family without sufficient monthly income to live. My client lives so close the line between a decent life and homelessness, that paying rent or a mortgage would push the family into poverty.
The IRS was skeptical and asked for further information time and again. We answered all questions, and were completely open about the situation. The result: a settlement of $1,000. Just 1.03% of the tax liability.
If you or a client needs help with a tax liability, call Jeffrey R. Siegel, your Kansas City Tax Attorney.