Need advice for handling large IRS tax debt - overwhelmed and need guidance

Don't beat yourself up too much - you're far from the only person who's been in this situation. The self-employment tax system isn't intuitive for most people starting out. First, you need to know the IRS has more flexible options than most people realize. Since you're already on a payment plan, you might qualify for an "Offer in Compromise" which lets you settle for less than you owe, or at minimum, a recalculated payment plan based on your current financial situation. The key is to gather all your documentation showing your current income, expenses, assets, and liabilities. You'll need to demonstrate your actual ability to pay. With a young child and proof of your necessary living expenses, you may qualify for a significantly reduced monthly payment. If your situation is truly dire, you might even qualify for "Currently Not Collectible" status, which temporarily pauses collections while maintaining your filing compliance. Whatever you do, keep filing your returns on time even if you can't pay in full, and try to make your quarterly estimated payments going forward to avoid digging a deeper hole.

After reading your post, I wanted to share something that helped me with a similar situation. I was drowning in about $30k of tax debt a couple years ago and feeling completely helpless. I tried calling the IRS multiple times but kept getting stuck in the automated system or disconnected. I discovered this service called taxr.ai (https://taxr.ai) that analyzed my tax situation and helped me understand my options. You upload your tax documents and they use AI to find the best approach for your specific situation. In my case, they showed me I qualified for an Installment Agreement with a much lower monthly payment based on my financial hardship. What was really helpful was they explained exactly which forms I needed and even highlighted specific sections where I could demonstrate financial hardship. They found deductions I'd missed in previous years too, which reduced my overall tax burden.

I was skeptical about trying taxr.ai after seeing it mentioned here, but I was in a similar situation with about $25k in back taxes. What convinced me was they had a satisfaction guarantee, so I figured I had nothing to lose. The analysis they provided was incredibly detailed - they found that I actually qualified for penalty abatement for my first year of non-payment due to "first-time penalty abatement" which I had no idea existed. They also showed me exactly how to document my financial hardship to get my monthly payment reduced from $550 to $175. What really impressed me was they identified several business expenses from previous years that my original tax preparer had missed. I was able to file amended returns for those years which reduced my overall tax bill by almost $4,000. The whole process took about 2 weeks, and now I finally feel like I can see light at the end of the tunnel instead of just drowning in tax debt.

If you need to actually speak with someone at the IRS about your situation (which I highly recommend), good luck getting through their phone system. I spent literally days trying to reach a human at the IRS about my payment plan issues last year. After hours on hold multiple times, I'd either get disconnected or told to call back another day. I finally used this service called Claimyr (https://claimyr.com) that actually holds your place in the IRS phone queue and calls you when an agent is about to pick up. Saved me hours of waiting on hold. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c Once I actually got through to a real person at the IRS, they were surprisingly helpful. I was able to get my payment plan recalculated based on my current financial situation and reduced my monthly payment by almost half. But I never would have gotten through without that service.

I need to follow up on my skeptical comment above about Claimyr. After waiting on hold with the IRS for 3+ hours and getting disconnected TWICE last week, I decided to try Claimyr in desperation. It actually worked exactly as described. I entered my phone number, they called the IRS, and about 45 minutes later I got a call saying they had an IRS agent on the line. I was connected immediately to a real person who helped me with my payment plan. The agent reviewed my financial situation and agreed my current payment of $600/month was too high based on my income and expenses. They reduced it to $275/month on the spot. They also explained I might qualify for an Offer in Compromise and sent me the forms to apply. I've been stressing about this tax debt for years, feeling like I'd never get ahead. Now I actually have a manageable plan. Wish I'd known about this service years ago instead of avoiding dealing with the problem.

One option nobody has mentioned yet is bankruptcy. If some of your tax debt is more than 3 years old, you might be able to discharge it in bankruptcy. There are specific rules about which tax debts qualify, but it could potentially wipe out a big chunk of what you owe. I went through chapter 7 bankruptcy last year and was able to discharge about $20,000 in tax debt from 4+ years ago. You still have to meet certain criteria - the returns need to have been filed at least 2 years before bankruptcy, the assessment needs to be at least 240 days old, and you can't have committed fraud. Bankruptcy has other consequences obviously, but if you're truly drowning in debt, it might be worth talking to a bankruptcy attorney who specializes in tax issues.

If you're dealing with IRS debt, consider contacting the Taxpayer Advocate Service. They're an independent organization within the IRS that helps taxpayers resolve problems. Their services are free and they can help negotiate with the IRS on your behalf, especially in cases of financial hardship. I was in a similar situation with about $42k in tax debt and couldn't afford the payments they wanted. The Taxpayer Advocate helped me get into Currently Not Collectible status when I was at my financial lowest, which paused all collections. Later, they helped me set up a reasonable payment plan based on what I could actually afford. Their website is https://www.taxpayeradvocate.irs.gov/ and you can find your local office there. It might take some persistence to reach them, but they can be incredibly helpful when you're overwhelmed.