How To Reduce IRS Interest & Penalties

Reducing IRS Interest & Penalties -- Overview

If you have unpaid tax, after a period of time, the penalties and interest can easily exceed the initial tax.

If you can reduce the tax owed, you will probably be able to reduce interest and penalties that are owed.  That is because interest and penalties are usually closely tied to the tax that is owed.  Reducing the tax is usually the best and least likely way to reduce interest and penalties.  This is often least likely, because the tax may already be at the lowest legal amount.

If you have a good reason why you were not able to pay the tax, this might provide you with a way to reduce or eliminate penalties.  It is usually more common to be able to reduce penalties than to reduce tax.

Generally, you won't have any luck asking the IRS to reduce interest that you owe on the unpaid tax.  However, since interest is charged on penalties, if you can reduce the penalties, you can reduce the interest that is charged on the penalties.

Also keep in mind that the IRS has a way of making errors when their employees get involved with interest and penalty computations.

Steps For Reducing Interest and Penalties

  1. Be prepared to pay off the interest and tax immediately or in installments.  Don't expect the IRS to reduce penalties and interest without a reasonable expectation of getting paid!

  2. Investigate reasons why the IRS should eliminate penalties.  Did you or your family have medical problems when the tax should have been paid or when the return should have been prepared?  Were you unable to obtain records? Etc.

  3. Recompute the interest without penalties.  The interest should be computed about a week past the date you plan to correspond to the IRS.

  4. Send your letter that requests an elimination of penalties, a copy of related IRS correspondence, if any, and a check that includes taxes, interest, but not penalties to the IRS.  Send this certified so you have proof of mailing.

  5. If you have not file the tax return, include the tax return in step 4.

  6. If the IRS denies your request to have penalties abated, resend your request to have penalties abated.  If the penalty amount is large enough, request that the Appeals arm of the IRS get involved.

Other Considerations --

IRS Interest Calculator

If you work with a tax professional, we strongly recommend that you contact them about any IRS penalty issues.  It should also be pointed out that no one can guarantee that an IRS penalty will be abated.  You don't know that your plea for penalty abatement will work until you have an IRS letter stating that they will abate the penalty!

How to get the IRS/State Interest & Penalty Calculator:


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Improve Your Chances - Use A Tax Professional

It has been our experience that CPAs, tax attorneys and EAs (Enrolled Agents), will have better luck at reducing penalties and interest than the taxpayer.  Often it is because the taxpayer does not write the correspondence correctly.  It may also be (the IRS won't admit this) that the IRS may take tax professionals more seriously.

Thousands of tax professionals have purchased our software.  If you want a name(s), of a tax professional that practices near you, give us a call at 1-800-326-6686.

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