Interest represents the “time value of money”, i.e., the cost of not paying when due. The IRS can only abate interest for “undue ministerial delay”. This does not include for example instances where the assigned IRS employee is gone for weeks in training or on vacation, but only “unusual” circumstances, e.g., the file was “lost behind the file cabinet” for an extended time.
Penalties can be abated based on “reasonable cause” under the “facts and circumstances” – e.g., whether you acted like a “reasonable person” would have acted in the circumstances to take care of your obligations (e.g., filing or paying), and whether imposing a penalty would not have had an impact in encouraging you to comply.
Favorable factors include:
- matters beyond your control that prevented your compliance;
- it was a first time error or failure to comply;
- you have otherwise been a compliant taxpayer and
- you acted promptly to correct the non-compliance when it became possible.
Sometimes the IRS requires the taxes, penalty and interest be paid in full before it will consider a request to abate penalties.
First Time Penalty Abatement or Other Administrative Waiver
The IRS may provide administrative relief from a penalty that would otherwise be applicable under its First Time Penalty Abatement policy.
You may qualify for administrative relief from penalties for failing to file a tax return, pay on time, and/or to deposit taxes when due under the Service’s First Time Penalty Abatement policy if the following are true:
- You didn’t previously have to file a return or you have no penalties for the 3 tax years prior to the tax year in which you received a penalty.
- You filed all currently required returns or filed an extension of time to file.
- You have paid, or arranged to pay, any tax due.
The failure-to-pay penalty will continue to accrue, until the tax is paid in full. It may be to your advantage to wait until you fully pay the tax due prior to requesting penalty relief under the Service’s first time penalty abatement policy.
Other administrative relief: If you received incorrect oral advice from the IRS, you may qualify for administrative relief.
Call the Toll-free Number on Your Notice
Is the information on your notice correct? If there is an issue you can resolve with your notice, a penalty might not be applicable. Call the toll-free number on your notice either to resolve the issue with your notice or to determine if you are eligible for First Time Penalty Abatement or other administrative waiver.
Is Interest Relief Available?
Interest charged on a penalty will be reduced or removed when that penalty is reduced or removed. If an unpaid balance remains on your account, interest will continue to accrue until the account is full paid. See the IRS Interest Overview page for additional interest information.