Client Success Story: Resolving a $38,000 Tax Liability After Hard Times

One of our Low-Income Taxpayer Project (LITP) volunteers shared an inspiring story about helping a client resolve a tax liability of over $38,000 after cashing out his retirement account. Thanks to the hard work of our volunteers, we were able to negotiate an “offer in compromise” (OIC) and relieve him of this significant debt.

The client had fallen on hard times, losing his job due to a substance abuse issue. On top of that, his wife filed for divorce, and to pay his attorney, he cashed out his retirement account. This action generated the taxable income that led to the liability. With no assets other than his car and struggling with homelessness—sleeping on friends' couches and working for minimum wage—he was unable to pay the taxes on the early distribution.

Fortunately, the client’s brother was able to loan him the amount needed for the lump sum offer. Taking into account the client’s limited income and assets, the IRS accepted the OIC. The Revenue Officer assigned to the matter was very conscientious and we appreciated that he carefully reviewed all of the information, and after an initial error in computing the client’s car expense, corrected that and accepted the offer. 

Due to the circumstances surrounding his job loss, the client also lost his professional license, making it difficult to find higher-paying work. The IRS debt was weighing heavily on him, and so while he still faces many challenges, we are glad to have been able to assist him in resolving this liability and easing some of the financial strain.