If you find yourself in that unenviable position, you should still file a return. That protects you from the late-filing penalty that otherwise would keep digging you deeper into a hole. That penalty mounts up at a rate of 5% of what you owe per month. You avoid that penalty by sending in your return, even if you don't enclose a check for the balance due.
Attach to your tax return a Form 9465 — Installment Agreement Request — asking the IRS to set up a monthly payment plan to pay off what you owe. That's not as unusual as you might imagine: About 2.5 million taxpayers are currently paying off their bills under such an arrangement and recently the IRS made it easier to qualify. In the past, before the IRS would okay an installment plan, the agency demanded a look at your finances—your assets, liabilities, cash flow and so on—so it could decide how much you could afford to pay. That's no longer required in cases where the amount owed is under $25,000 and the proposed payment plan doesn't stretch over more than five years.
Don't think the IRS is a patsy, though. You may be better off if you can borrow the money to pay your bill, rather than go on an installment plan which means, effectively, borrowing from the IRS. First of all, the IRS now charges a $43 fee to set up an installment payment plan. The IRS interest rate on late payments was 7% for the third quarter of 2005 and can change quarterly. That might not sound bad, but that's not all you have to pay, either. There's also late-payment penalty of 1/4 of 1% a month. The 7% interest rate plus 1/4 of 1% a month adds up to the equivalent of 10% a year. Of course, that's a heck of a lot better than most credit cards.
If you need an installment agreement, TaxCut will generate the Form 9465 request form.