When a taxpayer fails to meet their federal tax obligations to the Internal Revenue Service (IRS), interest will accrue on the amount of the tax obligation that remains outstanding. However, there are a number of mitigating circumstances in which a taxpayer can seek to avoid or abate interest on a tax obligation. Interest on tax obligations can be abated altogether, or certain periods of time can be excluded from the interest computation in an IRS Interest Abatement.
It should be noted that “reasonable cause” is never the basis for abating interest on a tax obligation, i.e. the mere exercise of ordinary business care and prudence will not suffice as a basis for avoiding interest charges. Yet there are a number of other bases on which interest can be abated or mitigated. These include situations where interest is excessive, barred by statute, or erroneously or illegally assessed. Other bases include situations where the IRS makes certain unreasonable errors or unreasonable delays, assesses interest based on an erroneous refund, or assesses interest based on a liability not identified to the taxpayer by the IRS in a timely fashion. Exceptions also exist for military service or declared disasters. Internal Revenue Service, Internal Revenue Manual, 20.2.7, Abatement and Suspension of Interest, available at https://www.irs.gov/irm/part20/irm_20-002-007r.html. Interest abatement can generally be obtained where the interest accrual was the result of a managerial or ministerial error on the part of the IRS, e.g. a loss of paperwork or a delay in processing, but only to the extent such mistakes were not caused by the taxpayer.
IRS Form 843 is the appropriate interest abatement request form. Included therein should be the circumstances of the taxpayer’s case, 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.
Taxpayers with substantial tax burdens in the form of interest on outstanding tax obligations should keep in mind that there are other methods for obtaining relief. General financial hardship may provide a basis for an offer in compromise to lower the overall tax obligation including interest, and payment plans are available as well. Such taxpayers should explore abatement as well as other options for relieving heavy interest burdens, and may wish to speak with an experienced tax attorney to identify the most appropriate solution.
Please keep in mind the information and advice presented in this blog is not intended to be used as formal legal advice. Contact a tax professional for personalized tax advice pertaining to your specific situation. While we try and answer all parts of the question when we write our blogs, sometimes there may be some left unanswered. If you have any questions about your problems with the IRS, SBOE, FTB, or BOE, or tax law in general, call RJS Law at (619) 595-1655.
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