Interest Abatement and Suspension on a Federal Tax Liability

Commonly,  taxpayers forget, ignore, or simply are unaware of interest due on a federal tax liability.  This can be a critical error as such interest can be significant in amount, even surpassing the underlying tax liability should the tax be owing for a long period of time.  The ability of a taxpayer to avoid the interest due on a federal tax liability is extremely limited given the Supreme Court’s long-standing ruling that interest on a federal tax liability is mandated unless Congress specifically provides otherwise.  As such, under the Internal Revenue Code, the payment of interest on a federal tax liability is required unless specific provisions apply that allow the IRS to limit or exclude interest.

Some established interest abatement or suspension provisions require that all interest on any balance due be suspended during a certain period of time, while others apply to only part of the balance due.  The most common types of interest abatement and suspension provisions include the following.

  1. On Employment Tax Returns an interest-free period from the original due date of the return, until the received date of the adjusted return or agreement if the tax is paid in full.
  2. Interest that is excessive, assessed after the statute of limitations, or is illegally or erroneously assessed, can be abated.
  3. Interest attributable to certain math errors made during IRS tax preparation can be abated.
  4. Interest on unreasonable errors and delays caused by the IRS in performing a ministerial or managerial act can be abated.
  5. Interest on the repayment of an erroneous refund of $50,000 or less can be abated.
  6. Interest should be abated (i.e. suspended) during the period the IRS did not timely (36 or 18 months) notify the taxpayer of a proposed liability.
  7. Interest is suspended if the IRS fails to issue a notice and demand within 30 days after the filing of a waiver.
  8. Interest is suspended for payments made within 21 calendar days (10 business days if the amount for which such notice and demand is made equals or exceeds $100,000) of a notice and demand date.
  9. Rules vary for suspension of pre- and post-petition interest including the different bankruptcy chapters.
  10. Combat Zone per IRC 7508: Disregards the combat zone plus up to 105 (106 leap year) additional days, depending on the circumstances.
  11. Defers payment of a liability, including interest due on a federal tax liability, for up to 180 days for a qualified taxpayer in the military.
  12. Postpones certain tax acts, including imposition of interest, that are due during a period of a federally declared disaster, terroristic or military action.

Our Law Offices are able to take advantage on your behalf of the limited statutory exclusions to interest on a federal tax liability that may apply to your situation.