What if I don’t have the money to pay the IRS for back taxes?

The IRS is aware that taxpayers continue to struggle five years after the U.S. economy sunk into recession.

The slow recovery means that many people still struggle to generate income, but they also owe taxes from past years.

The IRS may be more willing than ever to work with delinquent taxpayers, given the widespread financial pain felt by so many. But taxpayers who want extra consideration need to abide by requirements to contact the IRS to let them know what is happening and to file formal paperwork on time.

READ: Dealing with back taxes

If you have a job, your best solution may be to work out a repayment plan with the IRS. This year the IRS announced new, more lenient repayment terms while acknowledging that many taxpayers are having difficulty making ends meet.

The IRS allows up to 24 months to repay back taxes, but the interest and penalties make this form of borrowing one you’ll want to reserve as a last resort. If you can borrow the money from a conventional source you’re likely to pay less in the long run.

If you recently lost your job and that is a reason why you can’t pay back taxes now, you can request the IRS extend the due date by six months under a provision outline specifically for the unemployed.

If you don’t expect future income to allow you to repay your back taxes any time soon, your next option is to offer to repay a portion of the amount through the “Offer in Compromise,” which is a solution that works for many taxpayers, although it is up to the IRS to decide what a reasonable compromise is.

It is important to remember that even with recent loosening of repayment options, you will need to settle up with the IRS eventually. Federal tax liability can’t be wiped out by filing bankruptcy.

That means you will need to put a plan in place to eventually address the back taxes. Many people who sought out nonprofit credit counseling in recent years withdrew money from a retirement plan to pay credit card debt or back taxes. This is not a good plan.

First, retirement plans typically can be protected in a bankruptcy. Second, when you sell your retirement assets you bought with pre-tax income, it becomes taxable as income and subject to a 10 percent penalty.

It is not a good idea to incur new tax debt at the same time you pay down old tax debt.

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