When You Can't Pay the IRS.

• Author: SCHNEPPER, JEFF A.

YOU'VE COMPLETED YOUR TAX RETURN on time, but you still owe a whole lot of money. Maybe the kids got sick or you just didn't pay attention. The bottom line is that you've got this big tax bill in front of you and just don't have the cash to pay it. Your credit cards are tapped out, and a home equity loan is only available for those who actually have some equity. You owe the Internal Revenue Service and expect a gorilla to knock on the door and initiate "collection procedures" any day now. What do you do?

Don't panic! You're not going to jail and probably won't get beat up physically. In fact, if you follow the suggestions below, you might get off with some dignity intact and maybe even with a few dollars left in your wallet.

First, make sure you file your tax return. There are penalties for not filing as well as penalties for not paying. Even if you can't pay--file! You can't go to jail because you don't have the money to pay your tax bill. You can go to jail for not filing. It's a criminal act and you're not a criminal, so get that return in the mail.

If you file and don't pay in full, the IRS computers will automatically send you a letter asking for the tax due and any interest from the due date. What if you still can't pay? Ask for an Installment Plan. In fact, the IRS website (http://www.irs.gov) has an interactive calculator that helps you figure the monthly payment amount and actually prints out an Installment Agreement for you to file.

If you qualify for a "streamlined" agreement--generally, if you owe not more than $25,000 and will be able to pay it off within five years--you can find out about how long the payments will last. The true length of your payments depends on how much you owe and the interest rate charged. Since that rate changes every three months, these figures must be estimates, not guaranteed maximum payments. If the interest rate drops, you may pay over a shorter period of time.

If you don't meet the criteria for a "streamlined" agreement, you can compare your monthly expenses to the amounts allowed under the IRS's Collection Financial Standards to determine an appropriate tax payment amount. You can print out Form 9465, Installment Agreement Request, from the website and mail it to the IRS for review and approval. The site doesn't store or transmit personal data.

What if an Installment Payment just won't work for you? As in the past, you have the opportunity to ask for an Offer in Compromise. Under this program, you...