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

312-906-5041

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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"

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abatement, penalty abatement, Chicago Tax LawyersThe IRS, naturally, does not like to remove a penalty it has assessed. No matter how unfair these penalties may seem, you will still have to put in some work to get a civil penalty abatement to stick. That said, there are a fair number of reasonable causes upon which you can base a compelling argument:

Ordinary Business Care and Prudence

This category of abatement justification simply means "you did your best to pay your taxes, but couldn't for reasons beyond your control." Generally speaking, if you're not already a regular and conscientious taxpayer, you will not get the IRS to agree to this basis for abatement. But if you really did do everything in your power, and you've been compliant with your filing and payments for the past several years, you may be able to convince them that they should eliminate the penalty…this time.

Death, Serious Illness, or Unavoidable Absence

The "medical causes prevented me from paying" argument, if it's provable and true, is probably the most successful form of abatement request. It applies to individuals exactly like you'd expect, but it can also apply to businesses and institutions if there's only one person in charge of taxes, and if the businesses exercised 'ordinary business care and prudence' to try to get the taxes paid anyway and failed.

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