I'm old enough to remember the 90s and the 'kinder,gentler' IRS, and its more flexible guidelines on collection matters. Inevitably some collection agents were kinder and gentler than others. And, overall, the program was considered a success both as public-relations and in collecting money due the government.
Since the beginning of 2009, the IRS has implemented a similar 'leniency' program, intended to help taxpayers especially hard hit by the financial problems of the down economy. Some of our clients have benefited from this program, others are in the process of requesting relief (more time to pay).

What's involved? First, you MUST file your tax return(s), so that the IRS knows what you owe. The IRS has very little patience with non-filers and won't (almost can't) work with a non-filer.

Once the taxpayer knows how much he owes and decides he cannot pay in full at present, he (or she or they) should first consider filing an Installment Agreement (Form 9465, can be filed by mail or online), which lets the taxpayer define (within limits) how much he will pay each month. If the total tax, penalty and interest is less than $ 25,000, it's a fairly routine procedure. If more than $ 25,000, IRS requires a special form which includes all your financial information (their way of saying "prove you can't pay right now"). There is a $ 105 IRS processing fee for an Installment Agreement request.

If taxpayer still cannot pay, due to lost job, serious illness or huge medical bills, or other problems, he should contact IRS and explain the situation, documenting with whom they spoke (get their IRS ID number and their name). The IRS has the option of postponing collection efforts, and adjusting Installment payment schedules. These days, they make this fairly easy in most cases.

Another option is an Offer in Compromise, where taxpayer asks IRS to accept less than 100% of the tax liability. This requires a lot of extra paper filing and follow-up with IRS (IRS doesn't make this one easy, for obvious reasons).

If unsuccessful with the first request, the matter can be taken to a supervisor or a request for reconsideration can be filed.

In summary, the things to keep in mind if you cannot pay your taxes:

(1) File your tax returns and pay what you can.
(2) Don't ignore IRS letters, which won't go away. The longer a taxpayer goes without addressing the issue, the more the penalty and interest costs and the less sympathy the IRS is willing to provide (that has been my experience).
(3) If the matters are complicated or you (the taxpayer) stress easily, consider professional assistance with the process (which, yes, does cost money that you don't have).

Over the last 20+ years, I've found that most IRS collection personnel are understanding and willing to do what they can to be flexible. And there have been a few exceptions.