Tax Resolution: Time Matters

It is clear that time matters when you have IRS collection actions against you. If there is an imminent IRS Levy on your bank, a wage garnishment, tax lien or even the threat of property seizure, you will be racing toward an IRS settlement to your back taxes or tax debt.

What is not obvious to some, is that even under no threats of collection, time may be important when you seek tax help in order to have the tax relief that you seek. The timing of approaching the IRS may be important. Basically, if your financial situation allows you to apply for an offer in compromise, it may be prudent to do it as soon as possible, because the window of adversity, if we may say so, may be closing in on you.

For older folks who have a stabilized income and asset situation, that may not be as crucial because dramatic changes in your retirement income or assets is not expected. What you will submit to the IRS is what they will find out after investigation for six months or so.

If you have been earning money and things got hard because of the economy, you may qualify for an offer in compromise that you don't otherwise qualify for under normal circumstances. The IRS takes a long time to process the offer. It may take them from six months to a year to finalize your offer. So, a lot can happen. That is why it is advisable that you submit the offer as soon as you can, if there is a glitch in your earning ability, and before you are restored to financial health.

The IRS will basically inquire about your bank statements. They will ask for three months. If you are self- employed they may ask for a profit and loss statement for three or six months and even a year. Heavier weight will be attached to the most recent months because they may be showing a trend.

So, if the IRS asks you for six months of profit and loss, and you think that the last three months were a bomber, give the six months total. But also prepare another three month statement separately to show that something else is happening.

Similarly, if you have some dependents you are getting ready to lose, you may be advised to apply for the offer before this happens. Each dependent is very important. Each child could be worth seventy thousand dollars of tax debt assuming they will not leave and will stay as your dependents over the life of the statute of limitation.

Also, you may want to time your retirement in order to qualify for a tax resolution through an offer in compromise. Health insurance is a big item. If you are switching from private insurance to Medicare, your medical expenses will dwindle in a substantial fashion and so will the chance for qualifying for an offer in compromise. Think about these events before you jump. Your IRS tax attorney or your CPA can advise you with regards to what to do and when.