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Interest Abatement

Understanding the limited circumstances for reducing IRS interest.

Distinguishing Between Penalty vs. Interest

When you owe the IRS, your total debt is typically made up of three parts: the original tax, penalties, and interest. While penalty abatement is a common form of relief, interest abatement is much rarer and more difficult to obtain.

By law, interest is charged on underpayments from the due date of the return until the date the tax is paid in full. The IRS views interest not as a punishment, but as compensation for the time value of money—essentially, the cost of the government not having its money on time. For this reason, the IRS has very little discretion to forgive interest.

When Can the IRS Forgive Interest Charges?

There are only a few situations where the IRS is legally permitted to abate interest. The most common scenarios involve unreasonable errors or delays caused by the IRS itself.

Ministerial or Managerial Acts

Interest can be abated if an IRS employee's procedural (ministerial) or decision-making (managerial) error or delay caused that interest to accrue. The error must not be related to a judgment call on the law.

Example: The IRS loses your case file for two years, causing interest to build up. The interest from that delay period may be abatable.

Erroneous Refunds

If the IRS makes a mistake and sends you a refund you weren't entitled to, and then later asks for it back with interest, the interest may be abated. You must not have caused the error in any way.

Example: The IRS misapplies a payment and sends you a refund by mistake. The interest that accrues until they demand it back can be abated.

The Process for an Interest Abatement Appeal

Requesting interest abatement is a formal and technical process.

  1. Filing Form 843: A claim for interest abatement is made by filing Form 843, Claim for Refund and Request for Abatement.
  2. Detailed Explanation: The form must include a detailed explanation of the IRS error or delay, the specific time period involved, and how that error directly caused the interest to accrue.
  3. Proving the Case: The burden of proof is entirely on the taxpayer to demonstrate that their situation fits the narrow legal requirements. This often involves citing specific IRS procedures and timelines.

Because interest abatement is so challenging, it is critical to have a professional evaluate your case before proceeding. While it is not a common solution, it can provide significant savings in the right circumstances. Contact us for a free consultation to review your IRS transcripts and determine if an interest abatement claim is a viable option for you.

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