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The Tax Practice of IIT Chicago-Kent College of Law
The Tax Practice of IIT Chicago-Kent College of Law

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Interest Abatement: It Ain’t Gonna Happen

Posted on in IRS

interest abatement, tax penalties, Chicago Tax AttorneysSo you've been unable to pay your taxes for a legitimate reason, and your taxes have accrued both interest and penalties because of the delay. I wrote last week about how to get the penalties abated for various types of 'reasonable cause’. Today, I’ll talk about getting the interest abated. In short: it probably ain't gonna happen.

Internal Revenue Manual Section 20.2.7.1 explicitly contains this warning in bold: "reasonable cause is never the basis for abating interest". In other words, it doesn't matter if you were evacuated from the hospital (where you were recovering from a stroke) due to a bomb threat and emotionally devastated because your mother passed away a day earlier and you're dead broke and need every cent you have to feed your three children and your financial advisor told you not to worry about it; you still owe the interest from your late payment. There's not even an option under the law for an IRS agent to have pity on you - the interest is due no matter what.  Why?  Its all bout the "time value of money", Congress’ justification for requiring interest accruals on all outstanding tax debts.  The idea is that you have had the government’s money all along, since the due date, and it could have been earning interest in the bank…

Unless…

Nevertheless,  there are six very limited circumstances in which the IRS is given the statutory authority to abate the interest on an account, as follows:

  1. The interest itself was assessed illegally or in error;
  2. The interest accrued as a result of "unreasonable error or delay" on the part of an IRS officer;
  3. The interest accrued on an erroneous refund;
  4. The interest accrued on a deficiency that the IRS didn't identify within its own time limits (generally speaking, 12 months);
  5. The taxpayer is living in a Federally-acknowledged disaster area;
  6. The taxpayeis participating in an active war zone.

"In Error"

Many taxpayers like to believe that because a penalty for late filing has been abated, that somehow makes the filing 'not legally late,' and thus it makes the interest abatable under the first circumstance. That's simply not how the IRS defines "in error". Unless your penalty was abated due to IRS error, it's a very safe bet that your interest can't be abated under the same rationale.

Sidebar: Suspended Interest

If you hear someone talking about the IRS "suspending" rather than abating interest, don't get too excited. There's exactly one circumstance when that occurs: when the IRS audits you, determines you owe more money than you think, and then takes more than 30 days to send you the bill. No interest accrues (it's 'suspended') from the morning of the 31st day until they get your bill to you.

Interest abatement is only available in very limited circumstances, but there is still a small chance you may fall under the above-listed criteria. If so, it is important to show thorough documentation that you qualify to have your interest waived. At Chicago-Kent Tax Clinic, we offer low-cost tax controversy assistance from professionals with extensive experience in this field, much of that time having worked directly for the IRS. For a free consultation with one of our skilled Chicago tax attorneys, contact our office today at 312-906-5041.

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