What is the best way to clean up potential tax evasion issue with IRS

You need to quickly get correct tax returns filed. Then you can deal with paying any outstanding tax lisbilities. You may pay in full, establish an installment agreement or even request an offer in compromise depending on your circumstances. It can be a crime to knowling fail to file your tax returns and fail to pay your taxes. The IRS has a policy of not pursuing taxpayers criminally if they file and amke arrangements to pay their tax liability before the taxpayer is contacted by someone from the Internal Revenue Service.

Mr. Williams has addressed the issue of filing both the corporate and individual tax returns. Depending on the facts surrounding your case, you may be able to negotiate with the IRS applicable taxes, penalties and interest. In your situation, criminal prosecution seems remote. However, the IRS does have a Voluntary Disclosure program. Under that program, if you are currently not under any investigation or audit, the IRS has a policy (although it is not binding) of not referring the matter for criminal prosecution and the matter would largely be a civil matter. But you should consult with a lawyer and fully explain the circumstances to gauge whether or not a criminal prosecution is likely.