Tax Debt Resolution Articles – Tax Penalties
Back to Tax Debt Resolution Articles
The IRS imposes penalties are for filing and/or paying late.

The penalty for late filing of your federal return generally is 5% of the amount due for each month or part of a month the return is late. The penalty generally does not exceed more than 25% of the tax due. If the return is at least 60 days late, the minimum penalty is $330 (for returns required to be filed after December 31, 2019, and which is adjusted annually for inflation), or the amount of the tax due, whichever is smaller. Thus, it is important to file by the April deadline or request a filing extension so that the return can be filed within the extension period. Similar late filing penalties generally also apply to your state return.

The penalty for late payment of the tax is generally 1/2 of 1% of the unpaid amount for each month or part of a month the tax is not paid. The penalty generally can?t exceed 25% of the unpaid amount. Thus, it generally is important to file on time even if you can’t pay a balance due at the time the return is filed. Similar late payment penalties apply to your state return.

In addition to the above penalties, the IRS charges interest on the balance due, which begins to accrue on the balance due beginning from the original April due date of the return. Similar rules apply to your state return.

If you are unable to pay the balance due in full, you should pay as much as possible with your returns to minimize the amount subject to penalties and interest. In the event that you receive any correspondence relating to your returns, please contact us immediately so that we may provide assistance and advice.

The IRS regularly tacks on penalties wherever they can.

Did you know that Form 843 can be used to request refunds of certain penalties, fees, and interest?

You can only get rid of interest if it’s related to an IRS error or delay, but certain taxes and other fees may be completely erased in other situations.

What is IRS Form 843 Used for?

The most common use for Form 843 is to reduce tax interest and tax penalties incurred by taxpayers.

However, there are quite a few ways you can use Form 843 to get back money from the IRS:

Request a refund of taxes withheld by your employer in error, but only if your employer refuses to adjust the issue.
Request a refund of tax penalties and interest penalties that you have already paid.
Request abatement due to incorrect written advice from the IRS.
Request an abatement for reasonable cause (late on taxes due to health or medical reasons).
Request an abatement due to IRS related error or delay.
Request an abatement of tax other than income, estate, or gift tax.

What IRS Form 843 Cannot be Used For

Now that you know what Form 843 can be used for, let’s go over some circumstances where the form cannot be used. IRS Form 843 cannot be used to:


Amend an income or employment tax return that’s already been filed
Claim a refund of lien or for offer-in-compromise fees
Request abatement of gift or estate taxes
Claim a refund or abatement of FICA tax, Railroad Retirement tax, or
income tax withholding

It’s important to know that you will have to file a separate Form 843 for each type of fee or penalty to properly claim a refund. The IRS will take each request much more seriously if you don’t overload them with erroneous claims that aren’t likely to go through in the first place. It’s important to be detailed and honest in your claims, but be careful not to include anything that could possibly elicit an audit.
Form 843 Instructions

On line 1 of Form 843, enter the tax year that you are requesting a penalty abatement.
On line 2, indicate the amount to be refunded or reduced.
On line 3, check the box that best describes the type of tax or fee you wish to abate.
Line 4: When requesting a penalty abatement, it’s important to include the specific IRS section number related to the penalty. This number should be clearly stated on the notice that you received from the IRS about the penalty.
Line 5: In section 5 of Form 843, the IRS asks you to choose one of the following reasons for your request:
    IRS errors or delays
    Erroneous written information from the IRS
    Reasonable cause: A death in the family, inability to obtain records, natural disasters, and other related instances. It’s important to note that the IRS will not consider a lack of funds a reasonable cause.
Line 6: Mark the box for the type of return that relates to the fee you’re requesting an abatement for.
Line 7: Write an explanation for your request.
Sign and date Form 843.
Include any necessary documents needed in the list below.

Documents You May Need While Filing IRS Form 843

Providing a reasonable cause is not required in your Form 843 but if you plan on including a reasonable cause, it’s important that you supply the following documents along with your form:

Hospital or court records or a letter from a physician to establish illness or incapacitation, with specific start to end dates.
Documentation of natural disaster or other events that prevented compliance.

Tips for Filing Form 843

Stay humble—the majority of IRS employees are reasonable and non-judgmental people. Don’t get upset if things don’t go initially go as planned and certainly don’t take it out on the IRS.
Be careful what information you provide—you don’t want to give the IRS anything that could potentially come back to haunt you in the form of an audit.
Leave out any emotion in your letter—the IRS reads hundreds of these letters every day and they will only be looking for facts and a timeline. Keep your letter factual and include only what you need to state your case.
IRS Form 843 must be filed within two years from the date you paid the penalty taxes or within three years from the date that you filed the return, whichever one is later.

Where to Mail Form 843

If you are responding to an IRS notice regarding a tax or fee related to certain taxes such as income, employment, gift, estate, excise, etc., mail your request to the address listed on the notice that you received. For penalties, or for any other reason other than an IRS notice, send mail to the IRS service center that you would normally file your tax returns. If you are unsure of where your IRS service center is you can find out where the closest one is by visiting the website.

How Long it Takes For Penalty Abatement

If you’re filing for IRS penalty abatement due to reasonable cause, the process typically takes between three to four months. If you’re filing an accuracy penalty abatement, the process can take years because the IRS will need to conduct an audit to verify your claim.
Help Filing Form 843


Abatement of an Assessment

An abatement is an administrative means of correcting an error prior to the time the taxpayer pays the erroneously assessed amount. Form 843 (Claim for Refund and Request for Abatement) is filed to request an abatement. For practical purposes, Form 843 may be viewed as two separate forms. The first form is the “Claim for Refund,” which requires the taxpayer to first pay the assessed amount, then request a refund of the amount paid. The second form is the “Request for Abatement,” in which the taxpayer asks the IRS to wipe out an assessment prior to payment.

In general, IRC Sec. 6404(a) authorizes the unpaid portion of the following types of assessments of tax to be abated: (a) excessive assessments, (b) assessments made after the statute of limitations on assessment expires, and (c) erroneous or illegal assessments. The IRS can also abate small assessments that do not warrant collection because of the administrative and collection costs [IRC Sec. 6404(c)].

Observation: In program manager technical advice issued on May 18, 2010, the IRS looked at several issues involving a married couple who filed separate tax returns but more than two years later filed a joint return. After noting that IRC Sec. 6404(a)(1) allows the abatement of the unpaid portion of assessments that are excessive in amount (which “wipes out the assessment”), the IRS concluded that there is no statute of limitations on the abatement of tax. As long as initial assessments are timely made, nothing in IRC Sec. 6404 or the regulations thereunder prevents the IRS from exercising its abatement authority after the assessment period of limitations has expired (PMTA 2010-017). But to reassess an abated liability, the IRS must act within the applicable period of limitations.

Mathematical or Clerical Errors

907.4 The IRS can summarily assess additional tax resulting from a mathematical or clerical error without sending a Notice of Deficiency by notifying the taxpayer of the error [IRC Sec. 6213(b)(1)]. The notice must include an explanation of the error and give the taxpayer 60 days to request an abatement of the assessment. If the taxpayer disputes the summarily assessed amount, the IRS must abate the assessment [IRC Sec. 6213(b)(2)(A)]. (For more on mathematical and clerical errors, see section 902. Also see Appendix 9H for step-by-step guidance for requesting the abatement of a math error assessment.)

Abatement of Tax

This apparent broad grant of authority is misleading because taxpayers are not statutorily permitted to file a claim for abatement of income, estate, or gift tax (although in practice the IRS sometimes does act upon such claims if appropriate) [IRC Sec. 6404(b)]. (The same rule applies to interest and penalties assessed on tax that cannot be abated.) Instead, the taxpayer can (a) pay the assessed tax and request a refund on Form 843 (see section 204), (b) request an audit reconsideration (see section 1001), or (c) submit an offer in compromise based on doubt as to liability

While taxpayers have no statutory right to file a claim for abatement of assessed but unpaid estate or gift tax, CCA 201118017 notes that the IRS should reduce an excessive tax assessment on an administrative basis because it should be assessing and collecting the tax that is properly imposed by the Code. If the IRS determines that an overassessment has occurred, it should abate the tax as excessive under IRC Sec. 6404(a). But according to CCA 201118018, taxpayers have no right to sue in court, which they could do if they paid the assessed tax and filed a refund claim.

Prior to payment, taxpayer claims for abatement of tax on Form 843 are restricted to taxes other than income, estate, or gift tax. Furthermore, Form 843 is not used to claim a refund or abatement of FICA tax or income tax withholding (Form 941-X, 943-X, 944-X, or 945-X should be filed as appropriate). However, Form 843 should be used instead of Form 941-X, 943-X, 944-X, or 945-X when requesting an abatement of interest or penalties assessed on Form 941, 943, 944, or 945.

In CCA 200915034, the IRS addressed the abatement of an excessive assessment of unemployment tax under IRC Sec. 6404(a) when the period for requesting a refund or credit had expired, including when the taxpayer paid only a portion of the assessment and the period for requesting refund or credit had not yet expired. The fact that the statute of limitations for assessment has expired in both scenarios does not bar the IRS from abating the excess assessments—as long as the initial assessments were timely.

Abatement of Interest

The IRS can abate the following assessments of interest:

a. Interest accrued on an income tax deficiency resulting from an IRS math error on a return prepared by the IRS [IRC Sec. 6404(d)]. (However, the IRS cannot abate interest accruing after the 30th day following notice and demand for the tax deficiency.)
b. Interest on an erroneous refund of up to $50,000 [IRC Sec. 6404(e)(2)].
c. Interest on tax computed by the IRS under IRC Sec. 6014(a) from the normal due date until 30 days after the first notice and demand of the amount determined by the IRS as payable.
d. Interest accrued on a deficiency in income, estate, gift, or certain excise taxes attributable in whole or in part to an unreasonable error or delay resulting from an IRS ministerial or managerial act [IRC Sec. 6404(e)(1)(A)].
e. Interest accrued on a deficiency in income, estate, gift, or certain excise taxes during the period of delayed payment caused by an unreasonable IRS error or delay resulting from an IRS ministerial or managerial act [IRC Sec. 6404(e)(1)(B)].


IRC Sec. 6205 allows a debit interest-free period on employment tax returns from the original due date until the received due date of the adjusted return or agreement if the tax is paid in full.

Interest is suspended on an increase of liability if the IRS fails to provide the taxpayer adequate notice of liability and the basis for the liability within 36 months (18 months in certain cases) of the later of the due date of the return (including extensions) or the date the return was filed. However, IRC Sec. 6404(g) only applies to timely filed individual income tax returns.

Interest is suspended if a notice and demand for payment is not issued within 30 days on income, estate, gift, and certain excise taxes after the IRS receives a signed waiver or a waiver is executed by an IRS official. Interest will not be computed on the deficiency for the period beginning on the 31st day after the waiver filing date and ending on the notice and demand date (assessment date).

Interest is suspended if payment is made within 21 days of the notice and demand per IRC Sec. 6601(e)(3). If the amount of the notice and demand equals or exceeds $100,000, then interest is suspended for 10 days.

Internal Revenue Manual (IRM) differentiates the abatement of interest referred to in the preceding paragraph from the suspension of interest. Interest suspension provisions affect the entire balance due for combat zone personnel and taxpayers in a disaster area, as follows: (a) IRC Sec. 7508 disregards the period from the combat zone entry date to the combat zone exit date plus 180 days, plus up to 105 additional days (106 days in a leap year), depending on the circumstances; (b) IRC Sec. 7508A postpones the filing of the return, payment of tax liability, or both that is due during a period of a federally declared disaster, terroristic, or military action; and (c) Title 50, Appendix section 570 USC defers payment of a liability for up to 180 days for a taxpayer in the armed forces (not in a combat zone) in certain circumstances.

Affirming the Tax Court, the 10th Circuit held that the IRS lacks authority to abate interest on unpaid employment taxes under IRC Sec. 6404(e) (Scanlon White). The court’s decision rested on the IRS’s consistent interpretation of this provision as applying to interest relating to tax for which a Notice of Deficiency is required by IRC Sec. 6212, including income, estate, gift, and generation-skipping taxes.

The difference between items d and e in the list above is that item d relates to pre-assessment errors or delays, such as during an audit, while item e relates to post-assessment errors or delays during the collection stage. An error or delay in performing a ministerial or managerial act will be taken into account only if no significant aspect of the error or delay is attributable to the taxpayer (or to a person related to the taxpayer). Moreover, an error or delay in performing a ministerial or managerial act will be taken into account only if it occurs after the IRS has contacted the taxpayer in writing with respect to the deficiency or payment [Reg. 301.6404-2(a)(2)].

For this purpose, a managerial act is an administrative act that occurs during the processing of a taxpayer’s case involving the temporary or permanent loss of records or the exercise of judgment or discretion relating to the management of personnel. A decision concerning the proper application of federal tax law (or other federal or state law) is not a managerial act. Further, a general administrative decision, such as the IRS’s decision on how to organize the processing of tax returns or its delay in implementing an improved computer system, is not a managerial act for which interest can be abated.

A ministerial act is a procedural or mechanical act that does not involve the exercise of judgment or discretion, and that occurs during the processing of a taxpayer’s case after all prerequisites to the act, such as conferences and review by supervisors, have taken place. A decision concerning the proper application of federal tax law (or other federal or state law) is not a ministerial act.

Example Ministerial act that may result in an abatement of interest.
An examination of Skip’s income tax return reveals a deficiency, which will result in a Notice of Deficiency being issued. Skip and the IRS identify all agreed and unagreed issues, the notice is prepared and reviewed (including review by IRS Counsel, if necessary), and any other relevant prerequisites are completed. The issuance of the Notice of Deficiency is a ministerial act. The IRS can abate interest attributable to any unreasonable delay in issuing the notice.

Example : Managerial act that may result in an abatement of interest.
Monica, a revenue agent, is sent to a training course for an extended period of time, and her group manager decides not to reassign her cases. During the training course, no work is done on Monica’s cases. The group manager’s decision to send Monica to the training course and the decision not to reassign her cases are not ministerial acts; however, both decisions are managerial acts. The IRS can abate interest attributable to any unreasonable delay resulting from these decisions.

To be entitled to abatement, the taxpayer must correlate the IRS error or delay with a specific time period over which interest should be abated. In Berry, the Tax Court observed that: “It is clear from the record that [taxpayers] are seeking an abatement of interest not because of any specific ministerial act, but merely because they are dissatisfied with the amount of time it took to resolve their case. In fact, [taxpayers] stated in the abatement request submitted to the IRS that they chose January 1, 1992, as the beginning date for abatement because [they] found that the 3 years and 7 months prior to that date was a reasonable time for audit and settlement.”

Steps to Request an Abatement of Interest

Practitioners can follow the following steps to request an abatement of interest:

a. Write “Request for Abatement of Interest Under Section 6404(e)” at the top of Form 843.
b. Complete lines 1 through 3 for the tax period, amount to be abated, and type of tax.
c. Check the first box on line 5a to indicate that the claim is based on an assessment of interest because of IRS error or delay.
d. Enter on line 5b the dates of any payment of interest or tax for the tax period involved.
e. Check the appropriate box on line 6 for the type of tax return involved.
f. On line 7, enter the (1) date(s) when the taxpayer was first notified by the IRS in writing about the deficiency or payment, (2) specific period for which abatement is requested, (3) circumstances of the case, and (4) reasons why the failure to abate the interest would result in grossly unfair treatment of the taxpayer.

Example : Requesting an abatement of interest.

Charles filed his 2008 tax return on October 25, 2015, reporting an unpaid liability of $3,000. On April 12, 2016, the IRS sends him a notice that he owes tax of $3,416 and a late filing penalty of $854 for a total of $4,270. Charles signs an installment agreement with no dollar amounts filled in but is later notified that the balance owed, with penalties and interest but less overpayments from other years and a $1,000 payment, is $2,695. On August 9, 2017, the IRS sends him a notice including interest for the first time, which totals $5,284 for the period from April 15, 2009, to August 9, 2017.
Charles files Form 843 requesting an abatement of the interest for the period from April 12, 2016 (the date of the incorrect notice), to August 9, 2017 (the date of notice correcting the error), on the ground that the delay in payment was attributable to an error or delay by an IRS officer or employee in performing a ministerial act (Krugman).

The taxpayer can take a rejected abatement claim to the Appeals Office. Furthermore, the Tax Court has jurisdiction to determine whether the IRS’s failure to abate interest was an abuse of discretion if the taxpayer meets the net worth and size requirements under IRC Sec. 7430(c)(4)(A) (i.e., the rules for the award of attorney’s fees) [IRC Sec. 6404(h); Hinck]. Any Tax Court action must be brought within 180 days after the date the IRS’s final determination not to abate interest was mailed.

Note: The U.S. Tax Court has jurisdiction to review the Commissioner’s failure to abate interest under IRC Sec. 6404. A petition filed under this rule (Rule 281) shall be titled “Petition for Review of Failure to Abate Interest Under Code Section 6404.”

The IRS will send notice of a claim disallowance to the taxpayer’s “last address of record” under Rev. Proc. 2010-16. The practitioner should ensure that the taxpayer receives a “final determination letter” instead of a “no consideration letter.” Assuming that the taxpayer’s claim contains the information required for processing, the no consideration letter would not be appropriate because it is used when the taxpayer fails to submit all required information. More importantly, the final determination letter gives the taxpayer the opportunity to challenge the IRS’s decision in Tax Court. By failing to issue a final determination as required by IRC Sec. 6404(h), the IRS would deny the taxpayer the right to challenge the IRS’s determination in court because the Tax Court has exclusive jurisdiction to review the refusal to abate interest (CCA 201215006).

Practice Tip: Agents needing more time to complete an audit often ask the taxpayer to sign a consent to extend the statute of limitations. When requesting a consent, the agent may discuss previous delays due to managerial acts (e.g., delays from illness, training, etc.). These reasons may be used by the taxpayer when requesting an abatement of interest. The practitioner should ask the agent to put the consent request in writing and ask the agent to specify the reasons for any previous delay.

Abatement of Penalties Based on Erroneous IRS Advice

Special penalty abatement procedures apply where the taxpayer claims reliance on erroneous IRS written advice [IRC Sec. 6404(f)]. To qualify, (a) the taxpayer must have provided adequate and accurate information to the IRS, (b) the taxpayer must have reasonably relied on the IRS’s advice, and (c) the advice must have been issued in response to a specific written request [Reg. 301.6404-3(b)]. If the request for advice relates to a particular tax return, the taxpayer cannot file the return before the written advice is received. But a taxpayer who amends his or her tax return to conform to the written advice will be considered to have reasonably relied on the IRS’s advice.

The IRS has administratively extended penalty relief based on a taxpayer’s reliance on erroneous written advice to include erroneous oral advice when appropriate. According to IRM, in addition to considering the criteria provided in Reg. 301.6404-3 for written advice, IRS personnel reviewing oral requests should consider: (a) did the taxpayer exercise ordinary business care and prudence in relying on the advice; (b) was there a clear relationship between the taxpayer’s situation, the advice provided, and the penalty assessed; (c) what is the taxpayer’s tax history; (d) did the IRS provide correct information by other means (such as tax forms and publications); and (e) what supporting documentation is available (notations of the taxpayer’s question; how, when, and who provided the advice, etc.)?

Steps to Request a Penalty Abatement Based on Written Advice

Practitioners can follow these steps to request an abatement of penalties:

a. Write “Request for Abatement of Penalty or Addition to Tax Under Section 6404(f)” at the top of Form 843.
b. Complete lines 1 through 4 for the tax period, amount to be abated, type of tax, and type of penalty.
c. Check the second box on line 5a to indicate that the claim is based on a penalty that resulted from erroneous written advice from the IRS.
d. Enter on line 5b the date of any penalty payment(s) for the tax period involved.
e. Check the appropriate box on line 6 for the type of tax return involved.
f. Attach copies of the following documents to Form 843: (1) the taxpayer's request for advice; (2) the erroneous written advice furnished by the IRS; and (3) the report, if any, of tax adjustments identifying the penalty and the item(s) relating to the erroneous advice.

Example : Requesting a penalty abatement.
On February 5, 20X5, Sally mailed a written request for advice to her Service Center asking whether a certain item should be reported as income on her 20X4 tax return. A Service Center employee responds in writing that the item is not taxable. Relying on this advice, Sally excludes the item from her return. Upon examination, the IRS determines that the item should have been included and imposes an accuracy-related penalty under IRC Sec. 6662.
Because Sally reasonably relied on the Service Center employee’s erroneous written advice, any penalty attributable to the advice should be abated. However, taxes and interest resulting from the omission of the item (other than interest on the penalty) will not be abated [Reg. 301.6404-3(f)].

Abatement of Penalties for Reasonable Cause

The failure to file and failure to pay penalties can be imposed automatically by the IRS upon the filing of the return. However, the IRS will abate the penalty when the taxpayer shows reasonable cause and not willful neglect for failure to file a return or pay tax as required (IRM In some instances, the abatement will only apply to the portion of the penalty for the period the taxpayer meets relief criteria.

The IRS uses the Reasonable Cause Assistant (RCA), which is an interactive software program, when considering penalty relief due to reasonable cause (IRM The RCA provides a penalty relief option for the failure to file, pay, or deposit penalties if the taxpayer has not had to file the return before or no penalties have been assessed in the prior three years. This is known as the First Time Abate (FTA) policy. On April 4, 2014, the IRS reiterated its intent to limit penalty relief under the FTA policy to taxpayers who are current with their filing and payment requirements (SBSE-20-0414-0623, which revised IRM The procedural update adds that a “first time abate” conclusion will not be allowed if the taxpayer has an unreversed penalty for a “significant amount,” which is any net amount more than $1. Generally, the first-time abatement relief conditions are met if the taxpayer was not previously required to file a return or had no prior penalties for the preceding three years on the same Master File Transaction (MFT), barring certain exceptions, and the taxpayer filed or had a valid extension for all currently required returns and payments or had made arrangements to pay any taxes due.
907.30 The Treasury Inspector General for Tax Administration (TIGTA) often reports that most taxpayers with compliant tax histories are not offered and do not receive an FTA waiver. TIGTA also notes that the RCA “does not always provide employees with the appropriate penalty abatement determination. In these cases, IRS employees are instructed to override the [RCA] and follow Internal Revenue Manual policies and procedures.” However, in most of the sampled cases, the inaccurate determination was not corrected by the IRS employee.
907.31 See sections 1701, 1703, 1706, and Appendix 17G for discussion of when the reasonable cause exception applies to the assessment of civil penalties.

Identity Theft

Identity theft occurs when someone uses an individual’s personal information, such as name, social security number (SSN), or other identifying information without permission, to commit fraud or other crimes. Instances of identity theft can be alleged by the taxpayer or identified by an IRS employee. If the taxpayer presents proof that he/she does not owe the tax due to identity theft, the IRS employee should ask the taxpayer to provide substantiating documentation, such as a copy of the police report or Form 14039 (Identity Theft Affidavit). (Taxpayers who submit a police report rather than Form 14039 must also explain how the identity theft is affecting their tax records.) If after investigation it is determined that the taxpayer is a victim of identity theft, the IRS employee should prepare Form 3870 (Request for Adjustment) to correct the taxpayer’s account. The IRS employee should request partial or full abatement, write “Identity Theft” as the reason for adjustment, include an explanation for the adjustment, and attach the taxpayer ‘s substantiating documentation (IRM The completed Form 3870 and all attachments are routed based on the type of assessment that needs adjusting.

Substantiating documentation is not required in instances of IRS-identified identification theft. Taxpayers need to sign the Form 3870 only when they have not already provided a signed written request for reconsideration. An original tax return or an amended tax return will satisfy this requirement. For nonresident aliens, an adjustment request can be submitted without an original return if warranted by the circumstances.

A return filed by an identity thief using the name and social security number of another individual to obtain a fraudulent refund is not a valid return because it is not filed by the true taxpayer or with the taxpayer’s consent. Moreover, such a return is not signed by the taxpayer and so lacks a valid signature (PMTA 2012-13). Upon a determination that the submitted return resulted from identity theft, the IRS will correct the victim’s account, reverse the erroneous transactions, and mark the victim’s account with an electronic identity theft indicator. The issuance of a Statutory Notice of Deficiency in this situation does not prevent the IRS from making necessary adjustments to the taxpayer’s account, and the IRS could, with the taxpayer’s consent, rescind the notice. While rescinding the Statutory Notice of Deficiency would assure the taxpayer that a Tax Court petition need not be filed to prevent an erroneous assessment based on a defaulted notice, PMTA 2012-13 adds that “rescission would also preserve the Service’s ability to issue a statutory notice to the victim if it later determines that there is a deficiency on the victim’s own return.”

Notice of Deficiency Not Timely Sent

The Code suspends the accrual of penalties and interest if the IRS has not sent the taxpayer a Notice of Deficiency within the 36-month period following the date that is the later of (a) the original due date of the return or (b) the date on which the taxpayer timely filed the return. The suspension only applies to individuals who file a timely tax return and does not apply to the failure to pay, fraud, or criminal penalties. Interest and penalties resume 21 days after the IRS sends a notice and demand for payment to the taxpayer [IRC Sec. 6404(g)].

The IRS issued instructions (Rev. Proc. 2005-38) on how to seek administrative relief if the IRS has assessed interest for periods during which interest should have been suspended under IRC Sec. 6404(g).

Erroneous Abatement

The general rule is that when an assessment is abated, it is canceled and cannot be reinstated if the IRS later decides the assessment should not have been abated. (Instead, a new assessment must be made.) However, Chief Counsel Advice (CCA) 201134018 distinguishes between abatements based upon a substantive reconsideration of the taxpayer’s liability and abatements based upon a mistake of fact or a bookkeeping or clerical error.

• The IRS cannot cancel an abatement and reinstate the prior assessment when the abatement is based upon a substantive reconsideration of the taxpayer's liability, for example, when a taxpayer submits an amended return requesting a decrease in tax, which is allowed without fully screening the return. The abatement of tax results in a reduction in the tax liability shown on the taxpayer's account even though the IRS failed to review or inadvertently failed to screen the entire return prior to the tax decrease.
• If the abatement is based on an administrative or clerical error, such as a keypunch error or the misreading of input documents, the abatement can be reversed as long as the taxpayer is not prejudiced. An important factor to consider is whether the IRS formally notified the taxpayer that an abatement has been made. If an erroneous refund has been issued, the taxpayer generally will be prejudiced by the reinstatement and any associated effort to recover the erroneous refund.

In CCA 201134018, the abatement was made in response to an amended return. Because there was a substantive reconsideration of the taxpayer’s liability, the IRS was precluded from cancelling the abatement and reinstating the assessment.