The state of our national economy and the associated high unemployment rate have created many financial problems for all of us. Addtionally, poor personal financial management and the placement of inappropriate priorities on our financial obligations throughout the year often create significant problems, especially when your unpaid taxes are due. Note: This situation is equally applicable to mortgage loans, particularly those that are ARM based,  notes, car loans, payroll tax deposits, business working capital requirements, etc. This article is intended to provide possible solutions to the problem, and not offer criticism.
Many years ago a fellow employee stated his philosophy on problems to me (true story): “If you ignore it long enough, the problem will go away!” This is absolutely not correct, especially when it relates to unpaid taxes. To the contrary, be proactive and start making telephone calls, sending out e-mails etc as soon as you become aware of the fact that you can not pay your tax obligations when they are due. There may be options that are available to you for which you do not know. If you have been notified by either a State of Federal taxing authority, respond to the notification immediately and follow through on the communications until the problem(s) are resolved to the satisfaction of everyone involved. The list of possible solutions below is not in any order of priority, nor is it intended to be all-inclusive. It’s simply a starting point:
- Request an extension of the time to pay your taxes, especially if there is a personal or financial hardship;
- Sumbit an installment agreement request (Form 9465) with your tax return;
- Request a “temporary delay” in the payment due dates;
- Determine if you may be eligible for an “Offer In Compromise”;
- Apply for a loan from your bank;
- If available, use some of the available credit from your credit card or line of credit from you bank;
- Consider a withdrawal from your savings accounts
- Apply for a loan from your retirement account (i.e. 401(K)) but not your IRA which is ineligible. Retirement plan loans usually have to be repaid in five years or less;
- Consider a withdrawal from your IRAs. If you are younger than 59 1/2 you will avoid the 10% premature withdrawal penalty if the funds are used to satisfy a tax levy from the IRS;
- Obtain a loan using the cash surrender value of your life insurance policy;
- Apply for a loan using the equity in real estate holdings or your investments as collateral;
- Sell or liquidate some of your assets, i.e. investments, CDs, etc
- Borrow from friends, relatives etcÂ
- If you own a business and there is sufficient working capital available, you could use some of these funds. Be sure to record the required accounting entry in either the Note Receivable or Accounts Receivable account and re-pay the loan as soon as possible.   Â
Read This Article If You Need More Time to Pay Your Taxes
Taxpayers who owe taxes may be relieved to know that there are some options for those who owe and can’t afford to pay the full amount right away.
Here are the top 10 things the IRS wants you to know if you need more time to pay your taxes.
- Taxpayers who are unable to pay all taxes due are encouraged to pay as much as possible. By paying as much as possible now, the amount of interest and penalties owed will be less.
- Based on the circumstances, a taxpayer could qualify for an extension of time to pay, an installment agreement, temporary delay or an Offer in Compromise.
- If you cannot pay the full amount, taxpayers should immediately call the number or write to the address on the bill they receive.
- You may want to consider financing the full payment of your tax liability through a loan. The interest rate and fees charged by a bank or credit card company are usually lower than interest and penalties imposed by the Internal Revenue Code.
- If you cannot pay in full immediately, you may qualify for a short amount of additional time, up to 120 days, to pay in full. No fee is charged for this type of payment arrangement and this option may minimize the amount of penalties and interest you incur.
- You may also want to consider an installment agreement. This arrangement allows you to make monthly payments after a one-time fee of $105 is paid. If you choose to pay through a Direct Debit from your bank account, the fee is reduced to $52. Lower-income taxpayers may qualify for a reduced fee of $43.
- To apply for an installment agreement you can use the Online Payment Agreement application available on the IRS website; file a Form 9465, Installment Agreement Request; or call the IRS at the telephone number shown on your bill.
- In some cases, a taxpayer may qualify for an offer in compromise, an agreement between the taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. Generally, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement.
- Even if you set up an installment agreement, the IRS may still file a Notice of Federal Tax Lien to secure the government’s interest until you make the final payment.
- It is important to respond to an IRS notice. If you do not pay your tax liability in full or make an alternative payment arrangement, the IRS is entitled to take collection action.
More information on the collection process is available at http://www.irs.gov.
Links:
- Payment Options – Ways To Make a Payment
- Other Ways to Resolve Tax Debt That Could Save You Money
- Online Payment Agreement Application
- Form 9465, Installment Agreement Request
- Publication 966, The Secure Way to Pay Your Federal TaxesÂ
- Publication 594, The IRS Collection Process Â