I have a capital gains loss of $250K and an IRS debt of $200K, this happened through series of mistakes. I'm currently in non-collectible status. I understand that the IRS has 10 years to collect on the debt, my question is can the IRS outright waive the loss of $250K as some sort of a collateral so that I can no longer use it as tax deductible in the future? Or do they not have the power to just blatantly do that?

Point being that if I stayed in non-collectable status for 10 years, afterwards I could the use the $250k of loss as a deductible for future gains from that point onwards, however if the IRS waives the loss outright without my permission then that would really screw me up.

  • How do you have a capital loss of $250k but can't pay a $200k IRS debt?
    – D Stanley
    Apr 7 '17 at 18:23
  • @DStanley the capital loss it is stock related, basically the stocks I held did not go my way and were sold for a loss however due to miss management it was not sold in the same year to offset gains, so at the moment the loss can only be carried forward (it's a series of mistakes not just one). However all said and done I'm left with an IRS debt (of gains I had once) and capital loss which I can only carry forward because of a technicality.
    – Exocomp
    Apr 7 '17 at 18:33
  • 1
    Are you sure IRS debts become non-collectable?
    – quid
    Apr 7 '17 at 22:36
  • @quid yes by law they have 10 years to collect, however they are sneaky little a**holes some things you do can stop the clock like if you are in process of an offer in compromise or if you leave the country (for example for work). Also the clock only starts when you file not by the year.
    – Exocomp
    Apr 7 '17 at 22:40
  • 'waive[r]' is something done voluntarily, usually as a concession/gift or part of a compromise. I think you're asking whether IRS can prevent you using (and benefitting from) the loss carryforward; that would not be a waiver but a disallowance or denial. I don't think they can, but this is not an area where I have any experience so not an answer. Apr 7 '17 at 22:54

The cap loss can be used to offset future gains or $3000/yr of ordinary income. (I just used up the last of mine from the dot com bubble.) I hope you have future gains that let you use this up quickly.

The IRS debt is separate, and I don't imagine they'll let you use any of the loss to offset it. As always, it can't hurt to ask. Their normal payment plans are for 5 years. $40k/yr is a lot.

Edit - The IRS does negotiate. I recall, from the dot-com bubble, instances where someone exercised stock grants, but kept the shares. Now, they had a $1M gain, but after year end, the stock crashed. They owed tax on that gain, but the loss was in the next tax year, with nothing to offset. These people were 'regular' guys and gals, no background in finance. I understand the IRS looked at these people and made some exceptions.

  • sorry to hear you got hit with the dot com bubble, I know first hand how that feels. Your right they won't use the loss to offset the debt and can only be carried forward to offset future gains, the situation I don't have an answer for is that they have 10 years to collect the debt by law however say I do get to the 10 year mark do they have the rights by law to waive the loss? Reason why I ask is because if by law they can't then in 10 years the debt falls off and I would still have the loss to offset any future gains.
    – Exocomp
    Apr 7 '17 at 20:39
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    The IRS does negotiate. See the delightful anecdote I added above. Apr 8 '17 at 13:05
  • Question would be if those people did wait the 10 years then their debt would have fallen off and then what would have happened to the loss? Could the IRS forcefully (by law) deny them ability to use the loss to offset future gains?
    – Exocomp
    Apr 8 '17 at 13:20
  • I understand your question here. No idea how they'd handle it. My anecdote was to suggest they might negotiate upfront, if your situation was similar. Apr 8 '17 at 13:26
  • yea I see what your saying and my situation is similar (thanks for mentioning it) and I have tried that avenue but they say it can only be carried forwards.
    – Exocomp
    Apr 8 '17 at 13:32

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