Removal of IRS Penalties and/or Interest (Abatement)
The IRS can remove or reduce IRS penalties if you have an acceptable reason (IRC 6651). The procedure does not apply to interest and, in some cases, the tax must be paid before the request can be considered. We suggest you pay the principal tax liability (as shown on your tax return) before making your request.
Forgiveness of penalties is decided on a case-by-case basis. You must show that you exercised ordinary business care and prudence (and not willful neglect) and were nevertheless unable to file the return timely and/or pay the tax liability, perhaps because something going on in your life may have affected your decision-making process at the time of the penalty. If you are requesting abatement for failure to pay, you must show reasonable efforts to conserve sufficient assets in a marketable form in an attempt to pay the tax due.
You have good reason for abatement if your tax problems were at least partly due to:
- Destruction of your records
- Family problems, such as divorce or death in the family
- Incarceration or other significant disruption to your life
- Improper advice from a tax professional
- Erroneous written advice from the IRS (in this case interest may also be abated)
In sum, an abatement may be granted if you were victimized by factors beyond your control that caused your tax delinquency and the penalties.
The IRS has also abated penalties for taxpayers for such reasons as war, hurricanes, dishonest bookkeepers, alcoholism, drug addiction, and bad business decisions. They have even, on occasion, abated penalties for such basic reason as simply forgot to file, never did this before, etc.
There are abatements for acts of non-compliance, including civil fraud penalties, negligence penalties, penalties for failure to pay estimated tax, failure to pay penalties, late filing penalties, and dishonored check penalties.
Having the IRS abate interest is harder. The IRS will waive interest that is the result of certain errors or delays caused by IRS employees.