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Can't Pay Your Taxes?

The IRS offers options for getting right with Uncle Sam

3. Make an offer. That is, file for what's known formally as an "offer in compromise." You basically tell the IRS that you're prepared to pay a certain amount to settle your debt. Getting agreement will depend on whether the agency believes that this is the maximum you can manage. You must meet certain standards to be considered. If you're going through a bankruptcy, for example, you're not eligible. And if you haven't filed all of your tax returns, don't apply.

"Read the conditions on the form before you make the offer," Hicks says. "There are some downsides." Penalties and interest continue to accrue during processing. There is also a $150 application fee.

4. Borrow the money from friends or family and pay on time. Granted, you may not move in circles where people have the kind of cash you need, and the willingness to lend it to you at a low interest rate. But it can be far cheaper to go this route than to just put off payment while the IRS continues charging additional interest and penalties.

5. Get professional advice. The IRS' Taxpayer Advocate Service offers assistance to low-income people. Or you can call in outside pros.

But be cautious of whom you call. You've probably seen ads from companies promising to settle your tax debt. Such companies, legitimate or not, may charge more than $2,000 to handle your case.

"I've seen cases where they've taken people's money, but don't do the work," Hicks says. Her advice: get referrals from family and friends. And only do business locally. "Find somebody you can physically sit down with, to know if you feel comfortable doing business with them."

6. Declare bankruptcy. It's the most drastic measure and will complicate your life in general for years, but your taxes can be discharged in bankruptcy under certain conditions. You'll want to consult a qualified tax attorney to help you get through the fine print in this process.

Stacy Julien is a writer and editor at AARP Media.

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