J. William Seabrooke CPA P.C.

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:

1. Request an extension of the time to pay your taxes, especially if there is a personal or financial hardship;
2. Sumbit an installment agreement request (Form 9465) with your tax return;
3. Request a “temporary delay” in the payment due dates;
4. Determine if you may be eligible for an “Offer In Compromise”;
5. Apply for a loan from your bank;
6. If available, use some of the available credit from your credit card or line of credit from you bank;
7. Consider a withdrawal from your savings accounts
8. 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;
9. 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;
10. Obtain a loan using the cash surrender value of your life insurance policy;
11. Apply for a loan using the equity in real estate holdings or your investments as collateral;
12. Sell or liquidate some of your assets, i.e. investments, CDs, etc
13. Borrow from friends, relatives etc 
14. 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.     (more…)