In August we wrote about a friend who spent a little more than a week believing that she owed the Internal Revenue Service about $10,000. With the help of her tax attorney, she was able to clear the matter up. Still, she woke up every morning that week in a cold sweat wondering how on earth she was going to come up with that kind of money.

Fortunately, she was off the hook. Had she not been, though, she would have learned about repayment options that do not involve taking out a second mortgage or winning the lottery. She would pay in full, just not all at once.

One option is an offer in compromise, which we discussed in our last post. Another is an installment payment plan.

The process the IRS follows to determine eligibility for an installment plan makes one thing clear: This is a last resort. The IRS will do everything it can to get payment before it works out an installment plan.

Before the IRS will agree to an installment plan, the agency will first thoroughly examine the taxpayer’s assets. If there is cash on hand or other readily accessible assets, the IRS will use them to pay as much of the tax obligation as possible. If a balance remains, the agency will next look for any equity held by the taxpayer. Any funds that come from cashing out or borrowing against the equity — and that includes any gains that come from refinancing a mortgage — will be applied to the balance.

Next, the IRS will look at the taxpayer’s income and expenses to determine if an installment plan is practicable. The goal is not to put every spare dime toward that tax debt. The IRS is not in the business of impoverishing taxpayers. However, the plan may force a taxpayer to cut back on some things.

A qualified tax attorney can help you craft a repayment plan with the IRS. The rules can be a little convoluted, and the process can be confusing for the average taxpayer, the people who haven’t had much reason to deal with the IRS or federal tax disputes. Working with an experienced tax attorney can save time, money and aggravation.