During an Offer in Compromise investigation, the objective of the Internal Revenue Service (IRS) is to determine the taxpayer’s “Reasonable Collection Potential” (RCP). The RCP is the maximum amount that the IRS believes it can collect from a taxpayer to apply towards their tax liability. A taxpayer’s RCP includes his future ability to pay. It is also commonly known that the IRS investigates the applicant’s ability to liquidate or sell any assets. However, what few people understand is that one’s RCP for purposes of an Offer in Compromise can also include money and/or assets that the applicant no longer has and that no longer exists.
Dissipated assets are those that “(liquid or non-liquid) have been sold, gifted, transferred, or spent on non-priority items and/or debts and are no longer available to pay the tax liability.” (Internal Revenue Manual 126.96.36.199(1).) The rationale is that, at one time the asset or funds were available, and they should have been used to pay off (or partially pay off) the IRS.