At this point, the taxpayer has three options: contact the IRS and arrange to make payment, contact a tax attorney and prepare to fight the IRS, or ignore the payment demand. The first option is probably the easiest long term, but not necessarily the most advantageous.
When a taxpayer contacts the IRS to make payment on a tax debt, he may find that they are quite helpful and willing to make many different payment arrangements to accommodate his budget and present circumstances. They will not, as a rule, reduce the amount owed or the interest or penalties, however. For that kind of consideration, a tax lawyer must get involved.
Hiring a tax attorney is expensive but, in the long run, may be worth it. Many tax attorneys are former IRS agents and know the internal workings of the IRS. They are adept at negotiating settlements for a fraction of the amount owed, and they can have penalties and interest waived altogether in some circumstances. If a taxpayer owes any amount over $15,000, he should consider hiring a tax attorney.
Ignoring the collection letter is generally a bad idea, unless the taxpayer in question likes moving frequently and changing employers even more frequently. Once the IRS has determined that a taxpayer will not pay his debt willingly, they will obtain a judgment against the taxpayer and take the money. They do this by freezing bank accounts, garnishing wages, and seizing assets. Employers are required by law to comply with a garnishment order, so once the IRS finds out where an errant taxpayer works, he must find a new employer. With the new databases that are in place, it is reasonable to expect that the IRS will find the taxpayer's new employer within two or three pay periods.