Large tax bill . . . little money . . . what can you do?

The Internal Revenue Service has payment options for those who can't pay their tax bills in full when they are due.

Fill out Form 9465, Installment Agreement Request, and send it to the IRS along with your tax return. This single-sided form allows people to estimate a monthly payment that will fit within their budget and allow them to pay off the taxes owed in a reasonable period of time. An installment agreement generally must be approved by the IRS and some additional information may be required.

Those qualifying for a "streamlined" agreement - with a tax debt of not more than $25,000 that will be paid off within five years - will find out how long their proposed monthly payments would last. Taxpayers who do not meet the criteria for a streamlined agreement can compare their monthly expenses to the amounts allowed under the IRS's Collection Financial Standards, to help determine an appropriate tax payment amount.

To assist taxpayers interested in paying their taxes on an installment plan, the IRS Web site now features a new interactive calculator. This calculator helps a person figure the monthly payment amount, and then prints out an installment agreement form for the taxpayer to file.

"This is yet another way we're improving our services and helping people meet their tax obligations," said IRS Commissioner Charles O. Rossotti. "We should have less need to ask taxpayers for additional information, thus speeding our review process for their installment requests." The calculator is for individuals who are not already paying taxes under an installment agreement. It is available through the "Interactive Installment Payment Process" link on the "Tax Info for You" page of the IRS Web site, www.irs.gov.

Once the installment agreement is set, taxpayers must meet two requirements: they must make their installment payments on time, and they must stay current with their federal taxes during the agreement period. If they fail to meet either of these conditions, they will default on the installment agreement and be required to pay their tax bill in full.

Before entering into an installment agreement, people should explore all financial sources available that would enable them to pay the full amount of taxes owed. This is important because they will face additional costs when they enter into a longer-term payment arrangement. There is a fee for an approved installment agreement. In addition, interest and late-payment penalties are added to any unpaid tax. But the late-payment penalty rate is cut in half for those using installment agreements. People may be able to obtain loans at banks or other lenders at lower costs than the combined charges associated with an installment agreement. Those who decide to request an installment agreement should pay as much as they can when filing their return to reduce the amount of interest and penalties.

Some taxpayers facing very severe or unusual economic hardships may be able to settle their tax debts under an expanded "offer in compromise" program. Previously, the IRS could accept the taxpayer's offer in compromise only when there was doubt about whether the tax debt could ever be collected or whether it was owed. Now, the IRS may negotiate a settlement if full payment would create economic hardship, or exceptional circumstances exist where collection of the entire tax liability would be detrimental to voluntary compliance.

Taxpayers make an offer by completing Form 656, Offer in Compromise, and a comprehensive financial statement showing assets, liabilities, and income. The offer must reflect the maximum they can pay. Also, they must agree to meet all their federal tax obligations for five years or until the amount offered is paid in full, whichever is longer. Those who fail to meet the terms of the offer will once again owe all their back taxes in full. The offer in compromise program strikes a balance between helping individual taxpayers in severe circumstances and protecting all taxpayers by collecting as much of the tax bill as possible.

So for people who find themselves facing an unexpected tax bill, and payment in full just isn't an option, remember these payment alternatives. For more information, call the IRS at 1-800-829-1040.

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