One of the worst things about owing the IRS money is that it continues to grow. Not only do you have the actual tax debt that you owe, but the IRS charges interest and it also can charge two different types of penalties. After many years, 25% of your total tax debt can be penalties. You may have entered into a payment plan and filed all missing returns, but the penalties and interest continue to grow. Let’s go through some common questions about this bad situation:
What stops interest and penalties from accruing?
The only thing that stops interest and penalties from accruing on your tax debt is to not have tax debt. That means it must be paid in full, either through a one-time payment, making multiple payments over years, or by having an offer in compromise settlement accepted and then paid in full. Beyond this, those interest and penalties will continue to enlarge your debt to the IRS.
Can you have the interest accrued waived?
Unfortunately, the answer is no. The IRS will not remove interest unless there is an extreme unique situation. However, if you have an offer in compromise accepted, it can indirectly remove the interest as that is part of the settlement. Beyond that, you will be paying back all interest accrued on the debt.
Can you have the penalties accrued waived?
Yes! Penalties accrued for failure to pay in full and penalties for failure to file can be removed. This can be done through what the IRS calls Penalty Abatement. Your penalties are there for two purposes, failure to file and/or failure to pay in full. In order to get these penalties removed, you have to show reasonable cause to the IRS of why you failed to file on time or why you failed to pay it in full.
My favorite answer to these questions is when people tell me “well…we just didn’t have the money.” Unfortunately, that is not reasonable to the IRS. The IRS is not friendly or kind, their job is to collect tax revenue for the country and if they cannot do that, they will penalize you for it. However, if there was a natural disaster, if there was a death in the family, if there was a period of sickness, then the IRS would say…”well…that’s reasonable, we’ll waive your penalties, but you’re still paying interest!”
If you are paying on your tax debt, and its been years of paying but the debt is staying solid, and you have a reason of why you owed, it may be worth your while to attempt a penalty abatement request. Give us a call at 619-352-4188 to see what our professionals think your options are.
Tax Debt Services