I owe back taxes, should I apply for an offer in compromise?

Q: I owe back federal and state taxes for several years now. I work as an independent contractor, and nobody but me knows my earnings level.

I make not much more than 15k, so I wind up spending all of my tax money for essentials. I wish to do the right thing, and begin to pay some of my back taxes.

Is it better to contact a tax attorney, CPA, tax analyst, nationally-known tax service -- or simply go to the IRS and state offices and apply for an offer in compromise?

Are those ads I hear and see touting "pay only pennies on the dollar" on back taxes (such as JKHarris.com) recommended by a CPA, or should a avoid them? —JP, Brookline

The following answer was provided by Mark Misselbeck, CPA, Levine Katz Nannis & Solomon PC, Needham.

A: An Offer In Compromise is a possibility, but will depend on your financial situation - the IRS has specific forms and allows exemptions for subsistence costs in determining your ability to pay. They have "toughened" their stance, recently, but are more sympathetic than in past years. During their consideration, the statute of limitations on collecting the back taxes is suspended and is then extended by six months beyond what it would have been, once the "clock" re-starts at the conclusion of their determination to accept or reject your Offer. If they accept such an Offer, you will be required to timely file your returns and pay your taxes, without incurring a penalty, either for underestimating your taxes or for late payment - if you file late or incur a penalty, the Offer is nullified and all penalties and interest are re-asserted and are immediately due and payable. You will also (probably) have to agree that they get to keep any refund that you generate on future returns, until the Offer has been satisfied.