There are many reasons why the IRS may charge penalties on your tax account. The IRS is legally required, under Internal Revenue Code (IRC) § 6601, to charge interest when you fail to pay the full amount you owe on time. Interest may also accrue on penalties. Interest and any applicable penalties will continue to accrue until you pay your balance due in full. Here are some of the most common penalties, information on why they may have been charged, and how to request penalty abatement (removal) if applicable.
First let’s talk about some common penalty charges on individual accounts, along with interest, and why the IRS charges them.
The IRS is required to charge interest on any unpaid balance owed until it is paid in full. See the chart on the IRS’s Interest page for more details.
See Notice 746: Information about Your Notice, Penalty and Interest
Here are some common scenarios this year where you may see penalty and interest charges, and how to handle them.
There are a number of ways you can send a payment, including payment options if you cannot full pay right now, see the IRS Pay webpage or our articles File by May 17; here are some options and Need options for when you owe federal taxes, but can’t pay in full?
If you were affected by the pandemic or other circumstances, the IRS may be able to remove or reduce some penalties due to reasonable cause, but only if you tried to comply with the tax law but were unable to due to facts and circumstances beyond your control. If this applies to you and you have the necessary documentation to support your claim, you can call the toll-free number on your IRS notice or write a letter to request penalty relief due to reasonable cause.
See the IRS reasonable cause relief page for more details.
The IRS will also consider the following situations for waiving penalties:
If the IRS rejects your request to remove a penalty, you may be able to request a conference or hearing with the IRS Independent Office of Appeals. You have 30 days from the date of the rejection letter to file your request for an appeal.
Refer to Penalty Appeal Eligibility and Publication 4576, Orientation to the Penalty Appeals Process for more details.
If any of your tax and/or penalties are reduced, the IRS will also automatically reduce the related interest.
The IRS doesn’t remove or reduce interest for reasonable cause or as first-time relief. Interest is charged by law and will continue until your tax account is fully paid.
The IRS may only reduce the amount of interest you owe if the interest is due to an unreasonable error or delay by an IRS officer or employee in performing a ministerial or managerial act.
Use Form 843 PDF to request a reduction in interest. See Instructions for Form 843 PDF and IRC Section 6404(e)(1) for additional information.
The IRS will continue to charge failure-to-pay penalty up to 25% in total or until the tax is paid in full, whichever comes first. In general, the IRS won’t abate the failure-to-pay penalty until the underlying tax has been paid in full. Be aware that if there is still a balance due, even after the penalty is removed, interest will continue to accrue until the account is paid in full.
As of this date, the IRS response times for calls and written submissions is still being affected by the ongoing Coronavirus situation, so see the IRS Operational status page, including the section on Answered a Letter or Notice, for more details. However, even if the IRS takes a bit longer to address your request, if granted, all applicable penalties (and associated interest) will be removed as appropriate.