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Favorable Results – Offer in Compromise in a Community Property State

by | Oct 21, 2022 | Firm News |

Dealing with the IRS is difficult work and, in more cases than not, our clients are underdogs when trying to handle a federal tax controversy on their own.  Each week, we will post the successes we have realized with certain challenging cases.  We do this for two reasons – one, to let our followers know that there can be a solution for their specific tax controversy, and two, to remind us that we must continue to work as hard and persistently as possible to reach the client’s desired results.

Our Client had an outstanding tax liability of $145k dating back several years. He was separated from his wife, but never legally divorced. The wife was not liable for taxes. Originally, the couple lived in California and then wife moved to New York and finally to Texas.  While she was in New York, they executed a Separation Agreement, effectively severing any community property rights and obligations.  She bought a home in Texas and our Client moved from California to Texas, where she allowed him to live in her home as a roommate. Client, now on Social Security, paid his wife rent, and otherwise had no additional income. The IRS initially rejected the Offer in Compromise, claiming he could full pay the $145k owed with ½ the value of his wife’s home. We went to Appeals in Memphis where the rejection was sustained with little opportunity to argue our case. We did not believe this was a correct result, so we reached out to upper-level managers in the IRS who had the appeal reopened and reassigned to Appeals in Houston. The Houston appeals officer referred the community property issue to IRS counsel, who agreed with us and accepted the offer amount of $1,175 for the $145k tax debt, or less than 1% of the tax liability.