Owe $100k+ in taxes and penalties, no savings but have job

I have made some 1099 income the last 4 years which I estimate is at least $100k in taxes and penalties.  I was irresponsible and immature and now I am trying to rectify the situation.  I have maybe $5k in savings and no other assets except a car.  I have a yearly income in the 100-125k range that is still 1099.  What should I do?  I'm thinking that bankruptcy will not absolve the debt and ideally I can start using some of my current 1099 income to start paying the backtaxes.  Should I go to the IRS, a CPA, lawyer, tax debt expert that i see on tv all the time, a supremely higher being (sarcasm), or any combination thereof?

I also thought that my expenses might be relevant here.  I probably have $5k a month in living/family expenses with about 9-10k a month in income.

Here's my breakdown.

2009 - owe 35k
2008 - owe 45k
2006-2007 - owe about 20k-30k not completely sure
2001 - owe about 2k

Oh and I haven't filed yet but I started to receive letters.

Would forming an S-CORP have any benefit here maybe as a possible safehaven to protect a small portion of the income or would that be viewed as fraud?  I can change my income from 1099 to corp-to-corp at anytime.

Changing to an S-corp might make sense for the future, but its not going to help you for the past...and not for 2009 either.

I would suggest that you retain a tax attorney.  There is simply too much money involved here to do otherwise.

I also think that you need to plan to do some rather serious downsizing in your lifestyle.

Hopefully taxagent can give you some better suggestions .

I believe there is some provision for less problems if you come forward first to IRS before they chase after you.

But that said I'd want to discuss it with a seasoned tax lawyer first and pronto! At the height of "tax season" getting an appointment may not be easy --but get on it real soon  and schedule meeting right after April 15th

I would be very cautious of the TV debt experts.  Because failure to file or false returns involves prospect of criminal charges your matters might better be protected by a lawyer than a CPA or EA . I'm sure any seasoned CPA or EA could handle most issues if the matter gets addressed before it turns into a criminal matter.

And you are way beyond using the corner tax store

You need to see a tax attorney and get this mess straightened out. I assume you've not filed the returns because if you had, you'd know the extent of what you owe. As a result, bankruptcy won't help you because the taxes won't be dischargeable until a few years after returns are filed. Given the kind of money you are making and the pattern of not filing, there is some risk of criminal prosecution should the IRS discover this problem before you file returns. That's one reason you ought to see a tax attorney first—you may need the benefit of the attorney client privilege here. The attorney can help you engage a CPA for return preparation and, done correctly, that will also get the benefit of the attorney-client privilege since it being done under the umbrella of the legal representation.

If you file accurate returns before you have notice that the IRS is investigating you, that will resolve the risk of criminal prosecution so long as you are not taking other steps to evade taxes or hide assets from the IRS. But you will need to make arrangements to pay it off. Filing the returns and making the arrangements to pay will also save you money on the interest and penalties that are now accruing on the liability. Your first priority in making payments is to ensure that you make your 2010 estimated taxes on time and in the correct amounts so that you put an end to the cycle of accumulating tax liabiities year after year.

You also ought to see a finacial consultant, IMO. With your kind of income, having just $5K in savings and a car suggests that you are not wisely using your money.

Without more details on your financial situation, there is not much more I can tell you. But it is important that you start taking your tax responsibilities seriously and see a tax attorney for help.

dawnkiller:

Oh and I haven't filed yet but I started to receive letters.

The fact that you have started to receive letters from the IRS makes seeing an attorney NOW much more urgent. You need to take care of this before the IRS acts to either open a criminal investigation (which, while unlikely, is a possibility) or prepares a return for you based on the information it has. Either one will make your situation at the very least more time consuming and thus more costly to fix.

dawnkiller:

Would forming an S-CORP have any benefit here maybe as a possible safehaven to protect a small portion of the income or would that be viewed as fraud? I can change my income from 1099 to corp-to-corp at anytime.

It MIGHT save you some tax going forward. Without the details of your situation, it is impossible to say for sure. But it will do nothing to save you tax on the years you already owe, and it won't shield the business assets and income from collection by the IRS for your personal tax liability.