IRS Interest and Penalty Abatement

There are a lot of common misconceptions surrounding the abatement (removal) of IRS penalties and interest.

First of all, it is important for anybody that owes the IRS money to understand that you will not have interest charges removed. If somebody is trying to sell you on their tax relief services and they tell you that they can have the amount of interest on your tax account reduced or eliminated, they’re lying. The provisions within the U.S. tax code for eliminating interest charges on back taxes are extremely limited and extremely specific, and if you owe the money but just simply couldn’t or didn’t pay it, you DO NOT qualify.

The second thing to understand is that the removal of any penalties is extremely formulaic. You must meet one of the reasonable cause criteria outlined by the Internal Revenue Code. Fortunately, these reasonable cause criteria are much broader and more applicable to more people and businesses than are the criteria for interest abatement. Some of the possible reasonable cause criteria include death or illness in the family, loss of records, and receiving bad advice from a CPA.

It is important to note that the two most common causes for accrual of a tax liability are not considered reasonable cause by the IRS, and most often you will not be able to have penalties reduced for these two reasons. These reasons are:

• Ignorance of filing or deposit requirements
• Cash flow problems that leave you without enough money to pay the tax when due

Under special circumstances, the IRS will grant penalty relief due to economic hardship, but it is a hard case to prove and tends to be a longer, more drawn out process through the Appeals division. The granting of this sort of penalty relief can also depend upon which Circuit Court of Appeals district you live in, since different case law has been interpreted in a different court jurisdictions.

Above all, just remember that you can get penalties abated, if you have a good reason that was beyond your control and that can be backed up with proper documentation. And as far as interest charges go – forget about it, the IRS is not going to let you off the hook for those if you actually do owe the tax.