In the event an Offer in Compromise based on doubt as to collectability is submitted by a married taxpayer whose spouse is not liable for the tax debt, the assets and income attributable to the non liable spouse will not be considered in determining reasonable collection potential.
This means that the IRS will generally not pursue the assets and income of the non liable spouse when negotiating an Offer in Compromise that is based on doubt as to collectability.
The IRS will consider the spouse’s income and assets to the extent substantial property has been transferred by the taxpayer to the non liable spouse by gift or for less than the fair market value at the time of the transfer. The IRS will also not allow the non liable spouse to receive income or assets from the liable spouse that were transferred with the intent of hiding them when submitting an Offer in Compromise.
Non Liable Spouse’s Financial Information
In most cases, the IRS will request a detailed summary of the income and assets of the non liable spouse. It is important that all the information be organized and matches up to the expenses that are being claimed by the liable taxpayer. The IRS has rejected an offer in the past based solely on the non liable spouse’s refusal to provide financial information to the IRS when requested to do so.
The best way to handle this is to provide the financial information of the non liable spouse as a separate schedule at the time of the initial offer. Often, a taxpayer or practitioner will wait until the IRS requests the financial information but this will only delay the Offer in Compromise process and it is much more efficient to submit the information with the initial offer.