Is she still employed?  Is she one of those people putting off Social Security until age 70?  Does she own a house that would qualify for a reverse mortgage?  How did she end up owing $7,000, anyway?  "Fairness" means she has to pay her taxes just like most people.  

I like the way you think.

She owns nothing. She is 69 and is dog walker and home health aide. Must have been a free spirit back in the day; following her bliss might have been her career.

She thinks she can do an OIC but the IRS won't let her until she takes the 401k loan.

I think I will advise her to take the 401k loan and pay off the IRS. And then the 401k loan will be her only debtor.