Question: I stopped paying taxes in 2001, when my long-time employer bankrupted. I have worked on and off as a sub-contractor since earning about $30,000 per year but have no assets of value. I’m getting letters from the IRS. What can they do except throw me in jail?

Answer: Thanks for your question.  I would first like to make sure that you know that there is no debtors’ prison.  You cannot go to jail just for owing the IRS money.  However, you could be criminally prosecuted if you do not file your tax returns or you prepare fraudulent tax returns.  The first thing you must do is file all of your tax returns for the past six years (at least).  At that time, you will know exactly what you owe the IRS.  Keep in mind that penalties and interest continue to accrue all the time.  Since you work as a sub-contractor I will assume that you receive a 1099 for what you are paid each year and that no taxes are withheld from your pay, so you will have an obvious tax liability.  You mentioned that you have no assets of value so depending on your living situation and monthly living expenses you may qualify for an offer in compromise.  An offer in compromise is an agreement between you and the IRS for the IRS to take less money than you actually owe.  Obviously, this is an ideal way to handle your tax liability.  There are several types of offers in compromise and several ways to pay them depending on what you might qualify for.  Every offer in compromise is based specifically on your individual financial situation and not on some universal equation or percentage and the amount you owe does not directly affect your offer amount.  The truth is, not everyone is a candidate for an offer in compromise, but that doesn’t mean there is not a solution if you owe the IRS.