by Arlene Hauben

Created on: June 11, 2009

Interest on Taxes Can Be Abated

Regardless of what many practitioners tell you, the IRS does grant interest abatements, provided you can show reasonable cause. Interest on taxes can be abated.

If you have been assessed interest and penalty amounts, wouldn't you like to know how to get them removed?

In 1998, the IRS liberalized its rules for certain situations, allowing interest to be abated. Even under old provisions, substantial amounts of interest could be abated. For example, there were ways to achieve substantial savings on tax shelter assessments.

Before you send any payments for any interest or penalties to the IRS, make a request for abatement. You are entitled to penalty abatement if you can demonstrate reasonable cause for a reduction.

What constitutes "reasonable?" Any problem that caused you to make a mistake or omit some information is reasonable. Over the years, IRS has abated penalties for medical reasons, ignorance of the tax laws, fire, flood, spousal problems, drug dependency and alcohol abuse. And even for bad IRS advice!

In many cases, interest accrues to disproportionate amounts due to an error or delay by the IRS. If, for example, your tax case was assigned to an IRS employee who neglected or failed to finally resolve an audit or appeal, there are grounds for abatement of interest. The Interest Abatement Coordinator (IAC) performs an evaluation and makes recommendations to approve or deny abatement.

If approved, you will receive a notice that states: "We have determined that the provisions of sect. 6404(e)(1) are applicable, and interest on the deficiency will be abated. The next billing you receive will reflect this reduced interest assessment."

If you are denied abatement, you can appeal by requesting reconsideration.

You still have one more option. If the IRS denies the abatement, you can be heard in Tax Court. Here you have to prove that the tax deficiency was attributable to either "unreasonable error" or "unreasonable delay" by an IRS officer or employee.

Key Fact: There are factually intensive arguments that require development through the legal processes used to obtain internal government documents. As the burden of proof is on the taxpayer, it is imperative that the evidence be obtained and properly presented to the IRS.

To find out more, consult a tax attorney who is qualified to obtain the documents and can present them in a way that will win.

Caution: Abatement is a more complicated process than it used to be. To win, you must construct a sound legal argument.

To learn more, consult with a tax attorney who knows how to obtain the evidence from the government necessary to win.

Learn more about this author, Arlene Hauben.
Click here to send this author comments or questions.