In tough economic times, it's not unusual for people to find themselves in a money crunch. And for some, the April 15 tax-filing deadline will bring one more bill that can't be paid.
You could always borrow the money if you qualify for a loan. Or you might even dip into one of your retirement accounts. But cracking that nest egg probably isn't a good idea.
If all else fails, try striking a deal with the Internal Revenue Service, says Alan J. Denis, tax partner in charge at BDO Seidman in Philadelphia. In some cases, the agency will let you pay your debt in installments.
But whatever you do, he said, be sure to file your tax return by April 15, even if you can't pay the tax you owe. The penalty for not filing a return runs about 5 percent a month. But the late-payment penalty is only 0.5 percent a month.
"The IRS is more receptive to helping people who file on time," Mr. Denis said.
When you file, attach a note explaining your situation. If you know when you can expect to pay, say so in the letter. And if you can make partial payment, do that.
Six to eight weeks after you file, you will get an IRS tax bill. It will ask for full payment, plus 9 percent interest on the money due and the late-payment penalty.
The letter also will include a telephone number and the name of an IRS contact person. To speed matters along, call the agent and request a face-to-face meeting, as scary as that may sound.
"The IRS is more receptive when they meet a real person and hear a real explanation," Mr. Denis said.
If you want to pay your debt in installments, be sure to take all your financial information. The agent may ask you to fill out a "collection information statement" that lists all your assets, debts and sources of income.
But even then, an installment agreement is not guaranteed, Mr. Denis said. If you have assets that could be sold, mortgaged or used to secure a loan, the agent may demand that you do so.
If an agreement is reached, all future taxes must be paid on time, and updated financial information must be filed promptly, if requested.
If you fail on either count, the IRS may rescind the deal and begin legal action to collect. And that could get ugly.
The IRS has finally caught up with the economic times. In response to falling interest rates, the agency has lowered its rates for the first quarter of 1992.
The interest rates on tax deficiencies decreased to 9 percent from 10 percent. The new rate applies to estimated tax underpayments for the first quarter of 1992 and for the first 15 days of April.
Interest on refunds decreased to 8 percent from 9 percent.
Interest is paid on refunds if the refund is not made within 45 days of the due date of your return or 45 days after you file, whichever is later.