Penalty/Interest Abatement
Penalty and Interest abatement is a common request and advertised by all tax negotiation firms. When you have been charged penalties for failure to file on time or to make timely payments, you may have recourse. Here are some short answers to the questions we get.
Interest is generally not abatable unless the underlying tax is abated or reduced. However, interest abatement is possible when the IRS fails to take a ministerial act in a timely manner. Unfortunately, after 16 years with the IRS Collection Division and 25 years in representing taxpayers before the IRS I find it next to impossible to get the IRS to admit to not taking timely action. After all, the law gives the IRS 10 years to collect taxes. California has 20 years.
Penalties are abated if the underlying tax is abated. Penalties can be abated if the taxpayer can prove there is "reasonable cause" to abate each specific penalty. Reasonable cause is such things as fire, flood, theft, earthquake, prolonged illness, or incorrect advice of a tax professional such as an attorney, CPA or Enrolled Agent or any other person licensed to practice before the IRS. (Following the advice of your plumber will not work.) The illness of one spouse may not be reasonable cause if the other spouse is capable of handling the tax matter. And, I cannot stress enough that the reasonable cause must be provable with evidence.
It is important to relate the reasonable cause to each specific penalty such as Late Filing Penalty, Late Payment Penalty, Failure to Make Estimated Tax Payment Penalty, Failure to Make Federal Tax Deposit Penalty or other penalties. I have found that reasonable cause can apply to one or two years of mistakes, but it is very hard to prove the reasonable cause covered three or more years of tax delinquency.