In addition to penalties, a taxpayer may owe interest on an unpaid tax debt. Interest accrues until the taxpayer pays the tax debt in full. There are several circumstances where the IRS will reduce or even eliminate the interest owed. Of course, it will depend on the circumstances of the case.

Seeking relief from improperly assessed interest

A taxpayer may seek relief if the IRS assesses interest for periods during which interest should have been suspended because the IRS did not mail a notice in a timely manner. If the taxpayer believes that the IRS assessed interest with respect to a period during which interest should have been suspended, submit Form 843, writing "Section 6404(g) Notification" at the top of the form, with the IRS Service Center where the return was filed. The IRS will review the Form 843 and notify the taxpayer whether or not interest will be abated. If the IRS does not abate interest, the taxpayer may pay the disputed interest assessment and file a claim for refund. If that claim is denied or not acted upon within 6 months from the date filed, the taxpayer may file a suit for a refund in United States District Court or in the United States Court of Federal Claims.

Abatement of interest

The IRS may abate (reduce) the amount of interest owed if the interest is due to an unreasonable error or delay by an IRS officer or employee in performing a:

1. Ministerial act - This is a procedural or mechanical act, not involving the exercise of judgment or discretion, during the processing of a case after all prerequisites (for example, conferences and review by supervisors) have taken place. A decision concerning the proper application of federal tax law (or other federal or state law) is not a ministerial act.


2. Managerial act - This is an administrative act during the processing of a case that involves the loss of records or the exercise of judgment or discretion concerning the management of personnel. A decision concerning the proper application of law is not a managerial act.

Only the amount of interest on income, estate, gift, generation skipping, and certain excise taxes may be reduced. The amount of interest will not be reduced if the taxpayer or anyone related to the taxpayer contributed significantly to the error or delay. The interest is reduced only if the error or delay happened after the IRS contacted the taxpayer in writing about the deficiency or payment on which the interest is based. An audit notification letter is such a contact. Use Form 843 to claim a refund or request an abatement of certain taxes, interest, penalties, and additions to tax.

Reasonable Cause

Under certain situations, a taxpayer may appeal penalties assessed against him by the IRS for non-compliance with the tax laws. These involve the use of the reasonable cause criteria. Reasonable cause involves situations that are beyond one's control after exercising normal care and prudence. Most of the time, they involve death, serious illness, unavoidable absences, absence of needed records, and reliance on written advice from the IRS or tax professional.

1. Death - This is the death (usually sudden) of a spouse, children, parents, grandparents or siblings, this may include the tax preparer (or a member of the immediate family) or any individual on whom the taxpayer relies for data needed to prepare the return.


2. Serious Illness - Major and (usually) unexpected illness of the individuals listed directly above. This rarely applies to sources of return information.


3. Unavoidable Absences - This is related to absences of the taxpayer (or spouse), very rarely to the taxpayer's preparer, and never to sources of information. Situations include items such as incarceration, natural disasters, military deployment, and emergency hospitalization.


4. Inability to Obtain Needed Records - The provider of information crucial to the preparation of the return did not provide it by the date required by law, and the taxpayer has sufficient records to support unsuccessful attempts to secure the information in order to file in a timely manner. The taxpayer must also have attempted to obtain the records from any alternative sources without success; for example, if the taxpayer did not receive a W-2, he could prepare a substitute W-2 from the year-end pay stub.


5. Reliance on advice - If the actions taken as a direct result of, and in compliance with, written instruction from the IRS (or the oral or written advice of a tax professional) leads to the late filing and/or late payment of taxes, there are grounds for relief from the resulting penalties.

If the prospect of communicating with the IRS on your own behalf does not sound pleasant, you can enlist the help of a tax professional such an Enrolled Agent, CPA, or Tax Attorney. Which one is right for you? That depends on your individual circumstances. Any of the aforementioned professionals are able to represent you before the IRS. Both the CPA exam and bar exam are longer and more difficult that the IRS Enrolled Agent Exam. This however, does not make CPAs or Attorneys more qualified than Enrolled Agents when representing taxpayers. An enrolled agent is a specialist in taxation and representing taxpayers before the IRS. Because of this specialization, it is not uncommon for CPAs or Attorneys to also become enrolled agent practitioners. To become an enrolled agent, the professional must pass the three-part EA exam, also know as the IRS Special Enrollment Exam.