Is there a compromise I can make with State and IRS regarding the back taxes I owe?

There are a lot of commercials out there which advertise settling tax debts for "pennies on the dollar." Many of them state that these settlements are new offers by the government due to the state of the economy, but this is untrue; the I.R.S.'s offer in compromise (OIC) program has been around for awhile, and this is the option to which they're referring. The I.R.S. released a consumer alert regarding many of these companies that make false promises back in 2004: http://www.irs.gov/uac/Check-Carefully-Before-Applying-for-Offers-in-Compromise An OIC is something that should certainly be looked into, but it is not available for all taxpayers. There are pretty stringent financial criteria that must be met. However, there are other options available with the I.R.S., ranging from full and partial pay installment agreements to currently not collectible status. The Alabama Department of Revenue generally only accepts installment agreements. They do not have an OIC program, nor do they allow currently not collectible status. The Department will also push for these installment agreements to last for only one year, but with a collection information statement, you may be able to negotiate a lower monthly payment with the option to renew the agreement annually until the debt is paid. There are options available to you, but many of them depend upon your particular financial situation. Meeting with a competent accountant or attorney who is familiar with resolving tax debts would be the best advice. If you have any questions, please do not hesitate to contact me.

Another attorney if you were willing to employ one - otherwise file it yourself taking info and forms from the IRS website.

The IRS has an "Offer in Compromise" program; the program you are currently on may require modification. You may qualify for Pro Bono (i.e. no charge) legal services through the State Bar of Michigan.

When you say state, do you mean business taxes owed to Washington DOR? Or do you owe income taxes to some other state? IF you are talking about Washington business taxes, there is no such thing here as an offer in compromise or equivalent. Basically, WA state does not settle in 99.9% of the time. We can make a written offer and submit it to the DOR, but the review process is behind closed doors and there is no formal procedure to review or appeal their decision. I always tell this to my clients before we even try. Most of the time, folks who are completely "broke" and cannot pay the state just do not pay, but the minute that person surfaces as employed somewhere (even in some other state), WA is there to garnish those wages (for the taxes that were assessed personally against that individual - trust fund). So WA is not easy to deal with. As to the IRS, I would want to see if you have a reasonably good chance to file a successful OIC. I do not file one unless I can see that you have a chance. Otherwise, I will tell you as much: You make too much money and/or have too much equity in your assets. Do not listen to any advertisements that promise or even guarantee a settlement with the IRS: One can settle with them, but only if the financials are right (meaning, you are nearly broke and have nothing much in terms of assets). Thus, my recommendation would be to sit down with an attorney for a consultation and have that attorney determine, based on your financials, whether you have a good chance to settle with the IRS. If not, the plan B is always an installment agreement. I realize this is all very emotional for you, but the truth is that it does not take much to see whether a given taxpayer qualifies for any settlement or not. If not, you know that you should not be paying someone to file an OIC for you because it's like adding insult to injury: pay for the OIC and get a "no" for an answer, so your tax bill is even higher (with added interest and penalties) than before you began the OIC process.

There are many persons who might be able to assist you but none of them, anymore than you, can work for free, and there are no guarantees. If you cannot or will not pay someone to assist you will have to muddle through yourself, your choice.