Do nothing before consulting a tax attorney specialist.
Here are your three options.
1. Hire counsel. What he will charge you will be greater than what the government is offering. But you get the win.
2. Fight yourself, maybe win, maybe lose, but you are forever on the IRS crap list.
3. Take what they give you and be thankful.
And this is what is wrong with our country. Because this is what our lives have turned into.
From my own personal experience I'd recommend otherwise. I spent close to 20 grand back in the 80’s with tax lawyer fighting the IRS. He raised point after point, and stopped the IRS in their tracks. Except no matter how many battles we won, the war kept on going - till finally I ran out of money.
I had seen several signs around town that advertised, “Enrolled to practice before the IRS.” One that I drove by frequently also said, “Former IRS Agent.” With my money money supply dwindling, I said what the heck and stopped-in. To make a long story short, $1800 later my problems were fixed.
I've since heard similar stories from other people. I think if you want a high moral victory, hire an attorney. If you just want it over, get an ex IRS agent.