Dissipated Assets dilemma

Every day things the IRS does just seem amazingly stupid. Whenever I discover something new it appears to be absolutely insane. I find this latest discovery particularly disturbing. About two weeks ago I was discussing an offer with an offer Examiner in Oregon. My clients are in their early 60's and after retiring thought they would become "stock traders". Well that was not such a good idea and they suffered very big losses. They had to take all the money they had out of their retirement accounts to cover some options and wound up loosing every thing. Oh, by the way they thought they would come out on the options and would pay the tax later. It did not happen. They had all the income from their retirement accounts and did not pay any tax. A disaster. Perfect candidate for an offer in compromise, or at least I thought so. Turns out they are not eligible for on offer in compromise at the COIC level be cause of "dissipated assets". Dissipated assets are assets the IRS feels you could have used to pay your tax. These dissipated assets are added to the calculation to determine the reasonable collection potential or the minimum the IRS will accept in an offer in compromise.
I was familiar with the dissipated asset concept. It is in the Internal Revenue Manual at 5.8.5.4
Internal revenue Manual on Dissipation of Assets
This little section apparently has been interpreted at least at the Memphis center to be the basis of rejection for almost all offers. If one takes such a broad interpretation of this very small section of the Internal Revenue Manual, then theoretically the Reasonable Collection Potential Analysis goes out the window. This is because that any taxpayer who owes the IRS money presumably had enough money at some time to pay the tax, and did not. This current interpretation can cause the entire process to fail.
As the Offer Examiner explained the new "catch 22" to me we both had a chuckle. She understood the folly but, hey, she was just doing her job. She strongly suggested I appeal the forthcoming rejection. Not only did she agree that this new management twist on Offer in Compromise was nonsensical but that hopefully the appeals personal were not operating under the previous rule.

......More on dissipation of assets later. This is an unfolding story. To learn more about offer in compromise you may want to look at my book. Offer Secrets Revealed on how to process an offer in compromise.