The right way to handle this situation is, "You can't charge me penalties because I acted on the advice of my CPA". That is Mr. X's "get out of jail free" card.
However, it sounds to me like Mr. X's corporate accounting is being done "on a wing and a prayer" and with far too little interactions with the tax professionals Mr. X does use, if they are even licensed. As you can see, that's an expensive blunder; far cheaper to have a competent accountant and nurture a good relationship there.
Many small business owners do this to themselves
The pride and grit that makes them successful at small business makes them a disaster at taxes.
The very fact that Mr. X is trying to field these IRS inquiries ONESELF shows Mr. X does not have a functional relationship with the accountant.
That's always been the case though; Mr. X had the same problem with the last accountant. But this is a very common problem with small business owners: and the cure is to have a very clearly defined relationship with ones accountant, that is in writing, and says exactly what services they will provide, what they won't provide, what their responsibilities are, and what ONES OWN responsibilities are. This must be agreeable to both of you, and IT MUST BE IN WRITING so you can refer back to it when there is a disagreement. Which there will be with Mr. X, count on that!
And if Mr. X has any sense at all, part of the accountant's responsibility will be filing Mr. X's tax forms and dealing with the IRS.
Remember the scene in Breaking Bad?
Where the boss is about to go to prison for tax fraud, until the accountant Skylar comes in dressed like a bimbo, fondles the boss like they're having an affair, and pretends to be arrogant and incompetent. "But it came up green in the Quicken". And the IRS eyerolls and says "we see how this happened, forget prison, just pay your back taxes."
It goes something like that.
*"Hello IRS, I'm a licensed accountant (CPA). On behalf of my client, I am cleaning up a mess made by the last accountant".
IRS hears it all the time and will give that exact same eye-roll. They don't punish you for getting a better accountant or for wising up and letting the CPA handle it.
Once Mr. X makes a commitment that the accountant will handle present and past 1120s and IRS relations, Mr. X just gives them everything they ask for, and then sits back and waits for the phone call. The new accountant is able to get Mr. X's past 1120s, either from the IRS directly or from Mr. X's past accountant (unlike Mr. X, they have an impartial and professional peer relationship.)
Trying to go it alone in tax court will be a disaster.
I've won easily in tax court. They care about precisely two things: facts and law.
All the tax court cares about is whether the auditor made a mistake when analyzing the facts and interpreting tax law.
What Mr. X has is an emotional/fairness argument, and that will take Mr. X precisely nowhere.