Interest reduction We charge interest on penalties. Interest increases the amount you owe until you pay your balance in full. We will automatically reduce or eliminate related interest if any of your penalties are reduced or eliminated. We may charge you interest on a penalty if you don't pay it in full.
We charge a few penalties every month until you pay the full amount you owe. An exception is an “evaluable fine”, in which case interest begins to run from the date the fine is imposed. Internal Revenue Code § 6404 (g) allows the IRS to waive interest, but there must be two circumstances. First of all, this only concerns income tax interest, so if we're talking about wealth taxes, excise taxes, or employment taxes, there's no legal authority for the IRS to waive interest.
Secondly, it must be demonstrated that the interests arose as a result of some error or delay on the part of the Internal Revenue Service in the execution of a ministerial law. As you can imagine, the IRS seldom admits that such an error occurred, and there are few disappointing cases where taxpayers have successfully gone to court and had this position overturned for abuse of discretion. The FTA is the easiest penalty relief option of all. You can request it by calling the toll-free number listed on your IRS notice, or your tax professional can call the hotline dedicated to tax professionals or the compliance unit (if applicable) to apply for the FTA for any amount of fine.
Understand the most common types of IRS business tax penalties for filing and paying late, and your possible options for requesting a reduction in IRS penalties. For example, if an IRS employee lost their case file during an audit, the IRS can eliminate the interest that accrued during the delay in completing the audit. Get information from H&R Block about the four types of IRS penalty relief and which IRS penalty relief option may be best for your situation. This is a question I hear from many clients who owe money to the IRS, either because they couldn't pay everything that was on their tax return when it was filed or because they underwent an IRS audit and the adjustments were unfavorable to them.
You must have documented erroneous advice from the IRS that you have reasonably relied on, and the IRS does not routinely publish written tax advice. For more information on IRS notices and invoices, see Publication 594, The IRS Collection ProcessPDF. If you establish a monthly payment plan with the IRS (called an installment agreement), the IRS will halve your penalty for non-payment.
