A taxpayer can negotiate a decrease in the total amount of tax debt owed by seeking a decrease for interest and penalties.
The IRS calls this abatement and it can substantially reduce the tax debt. Abatement is a correction for taxpayers not responsible for the lateness of their tax payment.
The IRS grants to reduce penalties and interest for the following reasons:
- Reasonable cause (examples: death or serious illness in the family or prolonged unemployment),
- IRS fault (examples: an error or delay that let to a correction)
- Administrative waiver (example: government directive to provide natural disaster relief).
- Statutory exception (change in the Internal Revenue Code mitigates a liability).
The IRS resolves less than half of penalty abatement cases in favor of the taxpayer. Interest abatement cases are even more difficult to have resolved favorably.
While any IRS level can grant abatement, it is the supervisory level that grants most favorable resolutions. Relying on the help of a tax problem expert, can increase significantly the chances of obtaining a favorable resolution.
Positives are that abatement can sometimes reduce the total tax debt to a manageable level. Also, the IRS does not charge a fee as they do in other circumstances.
Negatives are that it can be tedious (including documenting your basis for the claim). And, in the end, you still owe the original taxes.