Can Interest Be Waived On Late Tax Payments?

If you fail to pay your taxes on time, the IRS assesses penalties and interest. There are a number of “reasonable causes” listed in the IRS manual for penalty abatement. These include ordinary business care and prudence, undue hardship, and poor professional advice. Interest abatement (having the interest on your late tax payments forgiven) is a whole different story. Tax Payments

IRS Manual Section states in bold “reasonable cause is never the basis for abating interest.” This means almost all of the reasonable causes listed as a basis for penalty abatement are not applicable to interest abatement. It doesn’t matter how extenuating the circumstances in your specific case, there are almost no allowances for the IRS to waive the interest on late tax payments; except in a few limited instances:

The IRS assessed the interest erroneously or illegally: This simply means the interest was a result of an error or was done illegally by the agency. Some believe that because they had a circumstance that qualified as a reasonable cause for penalty abatement, it constitutes an erroneous assessment of interest. That is not how the IRS looks at it. This exception only applies if the reasonable cause was strictly an error on the part of the agency.

The interest is the result of an “unreasonable error or delay” on the part of the IRS: This means if there was an extended delay in sending you the notice of the additional taxes that were due, the interest could be abated.

The interest was assessed on an erroneous refund: If the IRS caused an error leading to an erroneous refund, taxpayers generally have 21 days from the date the demand letter was sent to repay the erroneous amount. If they fail to repay during this time period, interest is assessed.

The taxpayer resides in a federally declared disaster area or active war zone: If you are living in an active war zone or if you live in a federal disaster area, these are really the only two “extenuating circumstances” outside of IRS errors in which you can qualify to have the interest on your late tax payments waived.

Owing back taxes to the IRS is among the most stressful financial circumstances for taxpayers. Though it is extremely difficult to have the interest on late tax payments forgiven, the IRS does offer a program called the Fresh Start Initiative to help struggling taxpayers who owe money to the government. To find out if you qualify and to discuss the best strategy to clear up your tax debt, it is always best to speak with a local tax professional.

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