Even though the 2005 amendment to the Bankruptcy Code made it more difficult to discharge IRS taxes, Bankruptcy is still the best avenue to deal with IRS. If your 1040 taxes were due more than three years ago, have been on file with the IRS more than two years, you have filed your taxes when due, and there is no fraud involved, you can probably discharge your taxes in bankruptcy.
If, however, your taxes do not meet the above criteria, you still have the option of paying the taxes out in a Chapter 13 bankruptcy plan. This keeps the IRS from levying bank accounts, taking property, and garnishing wages. You also have the advantage of discharging the penalties that have accrued pre-petition.
Lesson Of The Day
Even if you do not presently have IRS problems, DO NOT file your returns late, even if you cannot pay what is owed, because if you do file them late, there is Fifth Circuit case law that states those taxes can NEVER be discharged. You never know when you will have a life crisis in the future and need bankruptcy to discharge those taxes.