Offer in Compromise
In John F. Campbell v. Comm’r, T.C. Memo 2019-4, Filed February 4, 2019, the Tax Court ruled that an IRS Appeals officer, in the context of reviewing an Offer in Compromise during a Collection Due Process hearing, abused his discretion when including certain dissipated assets in the calculate of Reasonable Collection Potential (RCP). The Court explained that the Internal Revenue Manual (IRM) sets forth when dissipated assets should be included in RCP. Per IRM 126.96.36.199(1), dissipated assets are only included in RCP where “it can be shown that the taxpayer has sold, transferred, encumbered or otherwise disposed of assets in an attempt to avoid the payment of the tax liability,” or otherwise used the assets “for other than the payment of items necessary for the production of income or the health and welfare of the taxpayer or their family, after the tax has been assessed or during a period up to six months prior to or after the tax assessment.” The IRM instructs that the Appeals officers should use a three-year look-back period, from the date the offer is made, to determine whether it is appropriate to include dissipated assets in the RCP calculation. The officer may look beyond this period if there is a transfer of assets within six months before or after the assessment of the tax liability. The Court deemed it an abuse by the Appeals officer to include assets transferred 6 years before the assessment and 10 years before the Offer was submitted. The Court was further disturbed by additional IRS allegations that the taxpayer sought to “waste his wealth,” rather than pay his tax liabilities. There was no evidence on the record, or otherwise, supporting this contention.