I can tell you that the IRS was not happy with my client. He was in business for himself and had not filed returns or paid taxes in 13 years. When he got caught up on returns, he owed well into the six figures with interest and penalties. After an offer in compromise, and a lot of negotiation, the IRS settled for about 20%. There were no criminal charges.
How did we get this result? There were two important factors. First, my client came to the IRS before the IRS came to him. Voluntary disclosure before IRS contact will usually prevent criminal charges. Second, we were persistent. The IRS settlement officer said flat out that he had been with the service for 20 years, and this was about the worst situation he had seen. But if a taxpayer qualifies for an offer in compromise, the Service cannot reject it arbitrarily. Although the Internal Revenue Manual Section 188.8.131.52.1 states that the IRS may reject an Offer if it is not in the “best interest of the government,” such a rejection should not be routinely made and must be fully supported by the facts. For example, if the taxpayer has an egregious history of past noncompliance and current analysis shows that it will be highly unlikely that the taxpayer will be able to remain in compliance, then the Offer may be rejected. But “an egregious history of past noncompliance” is not sufficient. After pointing this provision out several times, a compromise was negotiated.