What if you can't pay the IRS

The IRS has options

You finish your tax return and find you don't have enough cash to pay Uncle Sam. You're not alone, and you won't go to jail. The IRS has some options as well as some more forms for you.

You finished your return and you’re still in shock. You made a lot of money and paid a lot of bills. But now you’re looking at a tax bill that you just can’t afford to pay.

Relax. You’re not alone, and your plight is not unusual. Moreover, you’re not going to jail. There are criminal penalties if the Internal Revenue Service can prove (the burden of proof is on them) that you intentionally didn’t pay your taxes, but we’ll assume that’s not the case here. You just ran low on cash, and nobody goes to jail just because they owe money -- even to the IRS. 

Your return is done -- that’s how you know the magnitude of your debt. Send it in. Don’t hold it just because you owe money that you can’t pay. But don’t mail it until it’s due, on April 15. You can’t go to jail because you don’t have the money to pay your tax bill, but 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.Your money, fast.
File your taxes online.
It's easy at H&R Block.



There is a penalty for late filing of 5% of the tax not paid by the due date for each month, or part of a month, that your return is late. Generally, the maximum penalty is 25%. But if your return is more than 60 days late, the minimum penalty is $100 or the balance of the tax due on your return, whichever is smaller.

Begging and borrowing
But avoiding the late-filing penalty doesn’t get the tax paid. Consider all of the possible sources of money. Can you borrow from friends or relatives? Do you have any equity in your house? If so, a home-equity loan might help eliminate or minimize your tax liability. Moreover, the interest on the loan likely would be deductible on next year’s return.

Do you have potential cash in your credit cards? The interest wouldn’t be deductible, and probably would be much higher than the rate the IRS would charge. Still, you might prefer to eliminate the specter of the IRS, and the post-midnight nightmares that go with it.

But what if you decide to negotiate directly with the government? Understand that the government ranks at the top of the list of creditors who must get paid. Any assets (other than your home or selling your business) are potentially fair game if you owe taxes. Don’t try to hide your assets. That comes under the heading of fraud and you can go to jail for that.

If you can’t come up with the money
What if you can’t find the cash? Remember, you’re not alone.

Ask for an installment plan. In fact, the IRS Web site has an interactive calculator that helps you figure the monthly payment amount and actually prints out an installment agreement for you to file. (Use the link at left under Related Sites.)

If you qualify for a “streamlinedâ€