I have been there and done that. My husband and I tried with a former IRS Agent now an Enrolled Agent to do an Offer and Compromise. This took us approximately 1 to 1-1/2 years to fill out and send in two times the paperwork. He ended up discussing our case with an individual who would not even move at all. He said it was because we had been making payments all this time and could not see why we couldn't continue. Once again our Enrolled Agent went back to the IRS and asked for an Appeal. After another month or two passed we were able to go in and talk to the head man in Denver. After our Enrolled Agent gave him the low down, and this man looked over our file. He said that if we were as bad off as our records showed, that we should just file a bankruptcy. Our Enrolled Agent was dumbfounded, and said are you actually suggesting these people do a bankruptcy and the IRS receive no payment for these tax years? The man said, "yes."

Just to give you some back ground - we owed for three old years and of course were making payments, but they would only apply it to the first year. The later years kept accummulating interest and penalties. We only owed approximately $4,500 for the one year, but after the interest and penalties, it grew to $25,000.

Any how, the ultimate outcome of the whole thing, was we went through a bankruptcy. And, yes, the three tax years went away. And, yes, the IRS has received no more money on those tax years. You'd think they would have wanted to get something instead of nothing.
Cate