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If you haven't filed and have ignored notices, etc., what the IRS does is prepare your returns for you, using prior years info plus an 1099 information they have received, without any deductions & then send you a notice saying you owe all this money you don't really owe, just to get your attention; it usually works; guess it did with you?
even if I file and get the correct amount due...I will never be able to pay it
The botXXXXX XXXXXne is that you have to get the returns prepared and filed so the correct amounts get on the record; once that is done you can negotiate with them;
what is the best form that negotiation can take...I have a friend that got his taxes declared unrecoverable...is that a possibility
If you are broke, you'll probably need to prepare an "Offer in Compromise" in an attempt to settle the taxes.
should I file for bankruptcy prior to negotiation
Unrecoverable is not the best situation as it doesn't wipe out the taxes, it keeps them on the books & they can re-open the case at any time to attempt collection efforts again; he probably represented himself & now he thinks he is home free, but he'll have to live under the radar for at least 10 years & possibly longer depending upon what's on the record;
how does an offer in compromise work
You need to get your returns prepared; they won't do anything without that; either you need to get a CPA to represent you, or you're going to be in a lot worse trouble; if you don't respond, you're already fooling with criminal penalties; big $ & worse;
An Offer in Compromise
only works if you are basically completely broke, no real estate, no home, no business, no assets, etc. Then you make a small offer to pay them something up front or so much a month & they agree to accept that as payment in full for whatever your obligation turns out to be;
I have a home but the mortgage is more than the value of the house...is it in danger?
But it is impossible to tell whether or not it might work in your case without a lot more information; it is beyond the scope of what we can do here;
I have a home but the mortgage is more than the value of the house...is it in danger...is my final question I think
Not if the mortgage is as you say; the IRS can't get anything from that;
can I go to jail
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Technically yes. Non-filing is a criminal offense.
If you're working on getting yourself in compliance, the likelihood is small re jail unless you've got other illegal issues or you fail to report all your income now; these returns need to be squeakie clean.