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IRS Interest Abatements

Introduction to IRS Interest Abatements

Any balance due that is owed to the IRS government will continue accrue interest on the amount of the outstanding tax obligation. The interest rate is generally pretty low in comparison with other types of debt,[1] but over time the amount of interest can add up and turn a small liability into a sizeable one. Unfortunately there is not too much to be done about your liability accruing interest and it is simply the cost of doing business with the IRS. However, there are certain mitigating circumstances where a taxpayer is able to do an IRS interest abatement in order to avoid the accrual of interest on some or all of the liability. When an IRS interest abatement occurs then the interest on a balance due can be abated altogether or just specific periods of time can be excluded from the interest calculation.

Requirements of an IRS Interest Abatement

Please understand that an IRS interest abatement is a fairly difficult thing to accomplish and that its requirements are often rigid and inflexible. First, I want to note that “reasonable cause[2]” can never be the basis for an IRS interest abatement. In other words, unlike IRS penalty abatements[3], ordinary business care and prudence is not sufficient grounds for having interest abated or mitigated. Rather, interest can only abated if certain conditions are met under statute. Internal Revenue Manual Section 20.2.7 explains the circumstances for an IRS interest abatement. They are:

  • If the interest was excessive, barred by statute, and/or erroneously or illegally assessed. [IRC 6404(a)];
  • If it was attributable to some unreasonable error or unreasonable delay by the IRS [IRC 6404(e)(1)];
  • If it was assessed on an erroneous refund [IRC 6404(e)(2) ];
  • If it was due on an additional liability that was not identified by the IRS in a timely manner [IRC 6404(g)];
  • If it was assessed or accrued during taxpayer's participation in a combat zone [IRC 7508];
  • If the a taxpayer has a qualifying for Military Deferment [Title 50 Appendix section 570 USC]; and
  • If the taxpayer was located in a declared disaster area [ IRC 7508A].[4]

Usually, the majority of these factors are not going to apply to the majority of taxpayer situations. Where I have seen most IRS interest abatements be successful though is through claiming that interest accrued because of a managerial or ministerial error on the part of the IRS. This includes loss of paperwork and delays in processing, which the later is somewhat common given the volume of accounts that the IRS handles. However, these circumstances only apply to situations where the mistake was not caused by an error or delay on the part of the taxpayer.

How to File an IRS Interest Abatement

If you believe that you have a valid claim for an IRS interest abatement, IRS Form 843 is the appropriate IRS interest abatement request form. The taxpayer should include the circumstances of the matter, the period to which the interest or the interest abatement period applies, the type of tax involved, the point in time at which you were first notified by the IRS of the interest owed on the tax obligation, and why an abatement should be given in the interests of justice. Given the difficulty in getting an interest abatement, I would recommend that you generally consult with a tax professional before attempting one. That person can make a fair an accurate assessment as to the likelihood of success of your IRS interest abatement claim and may be able to help you in preparing a claim that is more likely to be successful. They can also evaluate the likelihood of getting any penalties associated with the account waived too.

In conclusion, I hope that the contents of this article were helpful in explaining IRS interest abatements. If you have any further questions regarding this subject, or if I can assist you further, please feel free to get in touch with me using the contact information on this website.

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[1] IRS interest rates can be found here. http://apps.irs.gov/app/picklist/list/federalRates.html

[2] Here is some more information explaining reasonable cause.

[3] Here is some more information explaining an IRS penalty abatement.

[4] Taken from IRM 20.2.7, Abatement and Suspension of Interest: http://www.irs.gov/irm/part20/irm_20-002-007r.html.

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