619-795-8000
Our client, a diligent self-employed individual, was in an overwhelming predicament spanning six tax years—2016 through 2021. The crux of his tax liability stemmed from disallowed capital losses under the “wash sale” rule, as outlined in IRC § 1091. The impact of this rule was devastating. In one particularly challenging year, 2020, our client realized a capital gain of approximately $600,000. However, due to the disallowed losses, he was forced to recognize over $5 million in capital gains. This resulted in a tax liability nearly four times his annual income—a burden that was both staggering and inequitable.
Unlike many active traders who can mitigate such outcomes by electing to treat their capital gains and losses as ordinary income, our client was unaware of this option. Lacking access to the right advisors at this critical time, he was left to bear the full weight of a tax liability that far exceeded his financial capacity. As the years went by, his ability to generate income diminished, further exacerbating his financial hardship.
We knew that something had to be done. The Internal Revenue Manual provides a pathway for taxpayers in similar situations—a process under Section 8.23.3.1 that allows for an offer in compromise based on doubt as to collectability with special circumstances. This mechanism acknowledges that while the IRS could theoretically collect the full amount owed, doing so would cause undue economic hardship, particularly when the taxpayer’s situation is exacerbated by age, declining income, and other personal factors.
Our team got to work, making a compelling offer in compromise on behalf of our client. We proposed a lump sum payment of $650,000—a significant amount, but one that reflected both the inequitable nature of the tax liability and our client’s current financial reality. The offer was a calculated move, one rooted in the principles of fairness and effective tax administration. The IRS OIC unit initially recommended rejection of the offer, but our attorneys did not give up and we successfully negotiated acceptance with IRS Appeals.
Our client’s offer was officially accepted, resulting in a staggering $5.2 million in tax savings. It was a moment of triumph—not just because of the financial relief it provided, but because it validated our client’s right to fair treatment under the law.
This victory is a reminder that in the field of tax law, perseverance and strategic advocacy can lead to life-changing outcomes. While the numbers tell one part of the story, the true victory lies in restoring our client’s peace of mind and financial stability.
At Dallo Law Group, we take pride in delivering results that make a real difference in our clients’ lives. Whether you’re facing a complex tax issue or simply need guidance on navigating the intricacies of tax law, our team is here to fight for your rights and ensure that you receive the fair treatment you deserve. Reach out to us today and let us help you secure your financial future.
—Contact: (619) 795-8000