I am currently unemployed and my only income is unemployment compensation. I was laid off a couple of years ago. Towards the end of May I will become a 99er, i.e., my unemployment extensions will expire. I have applied for hundreds of jobs with no success, I am between the ages of 60 and 65. Because I lost my income I was unable to pay $10,000 that I owed on 2008 taxes. This is currently marked uncollectible with a lien against it. It I get a job the lien is removable if I sig up for a payment plan with the income. But so far there is no income.

I just did my 2010 tax return. The only income is unemployment and a $35 distribution, what was left of my IRA. Last year I paid about $1200 in taxes on unemployment and I withheld that amount. However, I just did the calculation and found out I owe $1900 on the $25,000 from unemployment. So suddenly I owe $700. Either the tax rate went up or it is higher beause the state I get unemployment from now pays more than the state I previously had benefits from.

The problem is that I am living very frugally on unemployment and have been saving money to pay my rent through the summer. If I pay the $700 to the IRS that brings me a month closer to homelessness - it could happen in July or the beginning of August. If I do not pay it, that would give me the summer to continue trying to work things out to find employment.

If I do not pay the tax, then that threatens the uncolletible status that is based on future taxes being up to date. But the unemployment will expire in May so there is no income to collect against, only the money I am reserving for basic rent and utilities.

I cannot declare bankruptcy on all of this because I had a bankruptcy discharged in 2002 after I first started losing everything in the recession and mass layoffs. (I struggled to get an education and skills to have a career and a livelihood, not for this, but that is another story).

I do not know how to handle this IRS problem. I do not have any diamonds but I have many of my belongings from over the years. I could try to sell a few items, such as furniture, but I hate to do that. My car is from 1996. It needs new brakes that I cannot afford, especially with this tax bill; it runs and I use it for local driving but it has an engine seal problem, so I don't think it is worh very much. I don;t know if the IRS will take it.

I assume that if I send in my tax return on April 15 without paying, by the time they get to it my unemployment compensation will have expired and my income will be zero.

Thank you for any advice.