QUESTION:

    I was recently divorced and my husband was ordered to pay alimony and child support to me every month.  When I filed my tax returns, my tax preparer told me that the alimony was considered income, however the money I received as child support was not taxable.  However, when I tried to set up an offer in compromise, the offer examiner included the child support as income and rejected my offer.

ANSWER:

    Your tax preparer was correct.  Child support is not considered taxable income even though alimony is (because your ex-spouse can deduct alimony payments).  However, when negotiating an offer in compromise with the IRS, they are going to count every penny your receive, regardless of the source as income for purposes of the offer in compromise.  I have several clients who receive income from the Veterans Administration due to injuries/harm suffered in combat.  That money is not taxable income for tax return purposes, however it is included when you are trying to negotiate a settlement with the IRS.

    Using Child Support as part of your income should not necessarily cause your offer to be rejected.  There may be some things you are not considering such as other allowable expenses you are forgetting about or you may be over-valuing your personal property.  There are many different reasons your offer in compromise was rejected, however the good news is you can appeal a rejection.  If you would like someone to assist you with your appeal it is not too late to hire a professional who deals with the IRS on a daily basis.