Form 656, Offer in Compromise, which is prescribed by the IRS for offers in compromise, states that entering the agreement has the following effects on the taxpayer:
1. proceed immediately by suit to collect the entire unpaid balance of the offer;
2. proceed immediately by suit to collect an amount equal to the liability sought to be compromised, minus any payments already received under the terms of the offer,
3. disregard the amount of the offer and apply all amounts already paid under the offer against the original amount of the liability; and/or
4. file suit or levy to collect the original amount of the liability, without further notice of any kind
Form 656 states that the taxpayer agrees to comply with all the provisions of the Code relating to the filings of returns and the paying of taxes for a period of five years following the acceptance of the offer in compromise. The IRS keeps any refund, including interest, owed the taxpayer for tax periods extending through the calendar year that the IRS accepts the offer. The taxpayer cannot designate such a refund to be applied to estimated tax payments for the following year.
If the taxpayer files for bankruptcy before the terms and conditions of the offer are completed, any claim filed by the IRS in the bankruptcy proceeding is treated as a tax claim. If the taxpayer files for bankruptcy after acceptance of the offer, the IRS will not default the offer or solicit payments while the taxpayer is in bankruptcy.