By: A.J. Cook


What if you don't have the money to pay your income taxes?

Don't panic. Send what you can and file your return anyway. This will avoid the penalty for filing late. Work out the money details later.

Willie Nelson couldn't pay the Internal Revenue Service and just recently cut a cool deal. His sad song began after he invested in several tax shelters promising $10 in deductions for every $1 invested. Instead of the deductions, he got a tax bill for more than $16 million. The IRS sold his ranch and auctioned his belongings. To keep the agency at bay, he gave it a royalty interest in his album, Who'll Buy My Memories? (The IRS Tapes).

The agency collected $3.6 million from sales of this album and his other assets. At last report, Nelson settled the debt by agreeing to pay only an additional $9 million over the next five years. Not a bad deal for the singer -- $12.6 million for a $16 million debt.

Nelson's settlement probably results from a new IRS policy favoring agreements with taxpayers. With uncollected taxes rising, it expects this policy to boost collections while giving taxpayers a fresh start. But IRS officers are tough negotiators. Don't assume they will settle when they can reasonably get the full amount. They'll expect you to sell that vacant lot and those 10 shares of AT&T.

If you file your return without full payment, the IRS will bill you for taxes and interest and add a late payment penalty, but not a late filing penalty. When you call the telephone number on the bill to explain your situation, the IRS officer will probably ask for a list of your assets and debts. She may insist you borrow the money or start sending in part of your paycheck. If the value of your assets and your earning potential are small compared to the taxes owed, try to settle on a reduced amount or suggest an installment payment plan.

In any case don't try to outsmart the IRS. If you lose credibility, it might seize and sell something you own. You don't want that. The IRS has no obligation to sell the asset for more than the agency's selling costs, e.g., advertising and real estate commissions. Diona S. Ringer received no credit to her tax debt when the government sold her $40,000 home for its costs -- $1,725.

The IRS can seize all of a delinquent taxpayer's assets except furniture, personal effects, professional books, tools and some wages. You might ask, is anything sacred? Not much.

By all accounts Ehsanolla Motaghed, from Omaha, Nebraska, owed the IRS $156,000. The agency heard he died, but before writing the debt off, it wanted to do some checking: Was he really dead? Is that really his corpse in the grave?

Fortunately the government backed down on exhuming the body when his family protested. The estate's attorney criticized the IRS, "They're just mad because he had the audacity to die without settling his account."

The Moral: When the IRS has you dead to rights, you're dead.


A.J. Cook is a lawyer and CPA. His tax column appears weekly in numerous newspapers. Why isn't it published in your hometown newspaper? Ask its Business Editor to subscribe.

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This information is not intended for use without professional advise.
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Released 4-5-93