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socrateaser, Lawyer
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How does one legally use their own money to pay an Offer-in-Compromise

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How does one legally use their own money to pay an Offer-in-Compromise Settlement with the IRS? My current understanding of the issue is that if you earn the money and are required toprovide an amended financial statement to the IRS the IRS may determine that that money shoud be added to the available assets of the taxpayer and not utilized to pay the settlement.

What you are describing is called a "collateral agreement," which the IRS officer may use under the following circumstances:

If the taxpayer Then consider securing a
Anticipates a substantial increase in future income Future income collateral agreement.
Is compromising the income tax liability of a defunct professional corporation Future income collateral agreement from the majority or sole owner of the professional corporation to collect from their future individual income.
Has real or personal property that is being depreciated Collateral agreement to reduce the basis of the asset.
Has net operating losses or capital losses arising from prior years available for deduction in future years A collateral agreement to waive the loss.


Is seeking to compromise a TFRP and qualifies to take a capital loss benefit from the defunct corporation on Form 1040 A collateral agreement from the individual taxpayer to waive the capital loss.


Collateral agreements are not the norm. The IRS officer must generally determine from your Form 656 that a collateral agreement is required.

Hope this helps.
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