Follow up comment:
I have responded to two people from this thread and I thought I should make it publicly available to help others who might be out there.
At some point you owe money to the IRS. You've filed the tax returns, you've wrestled with the IRS about waiving penalties, and there is a number. You're looking at it, and it's big.
This is what tax lawyers call "collections work." You owe money, and the IRS is trying to collect. As I noted in my previous comment, the Internal Revenue Manual is the operating procedure manual for Revenue Agents in handling collection of taxes owed. Plus of course there are shards of wisdom here and there that are important to know. Some are published by the IRS (they have an assortment of published documents, like things called 'Revenue Procedures') but some of this wisdom is informal, learned through experience with the system.
The work is time and paper intensive. Going to a tax lawyer is probably not cost-effective, because the hourly rates are too high, and you don't have money. So you need help. Where do you go?
Well, call tax lawyers, accountants, and (most importantly) Enrolled Agents. Enrolled Agents are regular people who pass an exam administered by the IRS that enables them to represent taxpayers in tax controversies.
The particular type of human I would look for is an ex-IRS employee who has left government work and set up shop as an Enrolled Agent. You now have the best of both worlds: someone who knows the inside baseball game, and is out here in the real world, working for you. Also, the costs are likely to be more reasonable that an attorney or CPA.
Look particularly for an Enrolled Agent who specializes in collections work. Buzzwords include "offer in compromise", "Lien", etc.
In the case of the two people who contacted me directly, I pointed them to John Knight in Southern California. His website is www.knight-ea.com (don't judge him by his website) [EDIT: thanks 'dewey for pointing out that it is really www.johnknight-ea.com] and he fits the criteria I mentioned. He gets frequent referrals from the top tax lawyers here in Los Angeles. (I know, because I talk to my colleagues.) I send him 100% of my collections problems.
I am not competent to give advice on exactly what to do in this area -- if you owe a ton and need to figure out what to do. I would recommend that you stay away from any tax law firm that advertises heavily on the traditional media. There are no miracles, but the "One Day at a Time" mantra will carry you through. You will, eventually, be (tax) debt free.
Again, anyone else out there -- if you're in this boat shoot me an email. But now you know what you'll get when you email me. :-)
/Phil.