941 taxes are more difficult than income taxes since you withheld the money from individuals' paychecks and were acting as a fiduciary to turn the money over to IRS.
First, you need to know that IRS cannot take your house while you are living. They can file a tax lien against the house and would be able get the proceeds if you tried to sell the house or if your heirs try to sell the house after your death. They cannot kick you out of the house now so hopefully that relieves some stress.
To potentially get the debt settled, you could consider filing an offer in compromise. You often hear about these with "IRS settling for pennies on the dollar" which is generally not what happens but you can get a settlement. In your case, you might be able to settle for the actual tax due without having to pay the penalties and interest. I am not sure if that is within your means or not.
That amount due can be paid as one lump sum or in an installment payment lasting for up to 5 years without the additional accrual of penalties and interest.
To attempt to get a settlement offer, you need to complete the Offer in Compromise paperwork that you can find on the irs.gov website. If there is a local IRS office near you, you can also make an appointment there to help you complete the paperwork. You also have the option of going to an EA or CPA to have them help you prepare the paperwork. You will need to make a good faith payment as part of your application.
If you do not feel an OIC is doable for you, then you could request that IRS put you in uncollectible status for right now. This does not make the IRS go away permanently but it can make them go away for a period of time while you get yourself re-established.
I hope this helps. If you need additional information, please hit the need info button and ask. If you are satisfied with the answer, please hit the green accept button to close out the question and allow me to receive payment.
The actual tax that is due comes out to $233,058.35 the interest due is $32,199.86. I can not even come close to paying the interest amount. We have nothing.
We are having a very hard time making ends meet.
None of it is penalties?
If you are not going to pay anything at this point, your best option is to request to go into uncollectible status. They will file the tax lien. This will avoid them trying to levy bank accounts and garnishee any wages. It will not stop them from taking any refunds so I would suggest you put yourselves in the position of not having a refund.
If you do nothing, they will take the action of levying bank accounts and garnisheeing wages.
Because it is payroll taxes, it is not going to go away. Unfortunately it is going to follow you for life or until you are in a position to pay it.
You need to contact the IRS and let them know you are unable to pay the bill at this time. They will require completion of an income statement and balance sheet. Upon examination they will provide the uncollectible status if you meet the criteria.
The criteria is looking at your current income to determine if there is more income than the minimum that IRS allows you to keep and if there are more than minimal assets (note, they cannot require you to cash in retirement accounts) that IRS allows. They cannot require you to sell your house, you are allowed to keep reasonable automobiles, personal property, etc. Collectibles, antiques, investments, etc would all be considered.