Interest Abatement: How to File a Claim with the IRS
Learn when the IRS may reduce interest on a tax liability caused by their own procedural errors and the necessary steps to prepare and file a claim.
When a tax debt remains unpaid, the Internal Revenue Service (IRS) is required by law to charge interest. This interest compounds daily, meaning it is calculated on the tax plus any existing penalties and previously accrued interest. Over time, this can significantly increase the total amount owed. However, under specific circumstances, the IRS has the authority to remove, or abate, the interest charged on a tax deficiency.
This process, known as interest abatement, is not a form of relief granted for common hardships or because a taxpayer lacked the funds to pay on time. Instead, it is reserved for situations where interest accumulated because of an unreasonable error or delay caused by an IRS employee. Obtaining an abatement is a formal process that requires the taxpayer to prove that their situation meets the strict criteria.
Grounds for Abatement
The primary basis for granting an interest abatement is found in Internal Revenue Code Section 6404, which allows the IRS to reduce interest attributable to an unreasonable error or delay by an IRS employee in performing a ministerial or managerial act. This provision only applies after the IRS has contacted you in writing about a specific tax liability or examination, and the delay cannot be something the taxpayer caused. This relief is available for income, estate, gift, and certain excise taxes, but not for employment taxes.
A ministerial act is a procedural or mechanical action that does not involve judgment or discretion. For example, if a taxpayer moves and promptly requests that their audit file be transferred to a new IRS office, the physical transfer of the case file is a ministerial act. Any unreasonable delay in performing that transfer after the request was approved could be grounds for abating the interest that accrued during that specific delay period.
A managerial act involves administrative decisions, such as the management of personnel or the loss of records. An example would be if an examining agent goes on extended leave and a supervisor fails to reassign the case to another agent for an unreasonable amount of time. Another instance is the temporary or permanent loss of a taxpayer’s case file by the IRS. If these acts cause an unreasonable delay, the interest that builds up during that period may be considered for abatement.
A less common reason for abatement involves an erroneous refund check issued by the IRS. If the IRS mistakenly sends a taxpayer a refund check of $50,000 or less, and the taxpayer is not at fault for the error, the IRS may abate the interest that accrues on the subsequent tax liability when the taxpayer has to repay that amount.
Preparing Your Abatement Claim
Requesting an interest abatement is centered around IRS Form 843, Claim for Refund and Request for Abatement. This is the official document used to make your case to the IRS. You can find the most current version of Form 843 and its instructions on the IRS website.
Completing the form requires specific information, including your name, address, and Social Security Number or Taxpayer Identification Number. You must also specify the tax period(s) in question, the type of tax, and the specific amount of interest you are asking to have abated. While a separate form is often required for each tax period, an important exception applies when requesting an abatement for an unreasonable IRS error or delay. In this situation, you can use a single Form 843 for multiple tax years or types of tax.
The most important part of the form is Line 7, the explanation of your request. In this section, you must construct a clear and detailed narrative. State that you are requesting an abatement of interest due to an unreasonable IRS error or delay in performing a ministerial or managerial act. Provide a chronological account of events, including specific dates of correspondence, conversations, and the period during which the delay occurred. Explain precisely how the IRS action or inaction resulted in the interest charges you are disputing.
To substantiate your claim, you must gather and attach comprehensive supporting documentation. This evidence proves the facts laid out in your Line 7 explanation. Supporting documents include copies of any relevant IRS notices or letters, copies of your correspondence with the IRS, certified mail receipts, and any other records that demonstrate the IRS’s error and the resulting delay.
Filing Your Request and Next Steps
Once you have completed Form 843 and compiled all necessary supporting documents, the next step is to submit your claim. The correct mailing address for your claim depends on the specifics of your case. You must refer to the “Where To File” chart in the Instructions for Form 843, as mailing the claim to the wrong service center can cause significant processing delays.
After the IRS receives your claim, you should expect to receive a letter acknowledging its receipt. The IRS review process for an interest abatement claim can often take several months to receive a final determination. During this time, the agency will review the details of your explanation and the supporting evidence you provided.
The process concludes when the IRS issues a formal decision. If your request is approved, the interest you disputed will be removed from your account, and you will receive a notice reflecting this adjustment. If the IRS denies your claim, you will receive a formal notice of disallowance. This notice will explain your right to appeal the decision, a process that must be initiated within a specific timeframe.