When can IRS interest be abated?
IRS interest is statutory and generally not abated for taxpayer mistakes. Abatement is available in limited situations: when the interest was caused solely by an IRS error or delay, when a statutory relief program applies (for example, certain disaster relief described in IRS Publication 971), or when another law or administrative policy specifically provides relief. For penalty relief (which may accompany interest relief in some cases), see the IRS first-time and reasonable-cause guidance at IRS penalty relief pages.
Source: IRS interest and penalty guidance and Publication 971 (IRS.gov).
How IRS interest is calculated (the practical formula)
- The IRS compounds interest daily on unpaid tax. That means you should treat interest as a daily-compounding amount, not a flat annual fee. See the IRS interest rate page: https://www.irs.gov/payments/interest-rates.
- Practical calculation method you can use:
- Determine the principal balance (unpaid tax amount) and the number of days in the interest period.
- Find the annual IRS interest rate for the relevant period (IRS publishes rates quarterly).
- Convert to a daily rate: dailyrate = annualrate / 365.
- Compute interest using daily compounding: interest = principal * ((1 + daily_rate)^(days) – 1).
Example (illustrative only): a $10,000 unpaid tax balance for 30 days at an annual rate of 6% -> daily_rate = 0.06/365, interest ≈ 10,000 * ((1 + 0.00016438)^30 – 1) ≈ $49. Note: IRS rounds and posts official rates quarterly; use the published rate for exact figures.
If you prefer not to calculate manually, use IRS notices (your CP notices show interest accrual) or professional tax software to get official amounts.
Step-by-step: How to request interest relief
- Confirm whether interest abatement is available in your situation
- Review the IRS notice or account transcript to identify why interest was assessed.
- Check if the interest resulted from an IRS error or if you qualify for disaster/statutory relief (Publication 971).
- Gather documentation
- IRS notices (CP/Letter), account transcripts, return copies.
- Proof of the event causing delay (medical records, disaster declarations, employer records, bank statements, correspondence proving IRS delay).
- Evidence of prior compliance (for first-time relief) if arguing administrative waiver.
- Calculate and document the interest you seek to abate
- Use the daily-compounding method above and include IRS quarterly rates for the period.
- Show your math in a clear schedule attached to your request.
- Prepare the request packet
- For penalties and many administrative relief requests, see the IRS penalty-abatement procedures. Where applicable, use Form 843, Claim for Refund and Request for Abatement and include a detailed statement (reasonable-cause letter) and supporting documents.
- If the IRS issued a notice with a specific address to reply to, send your packet there. Otherwise follow Form 843 instructions.
- For disaster victims, follow the process in Publication 971.
- Submit, follow up, and preserve records
- Mail or submit per the IRS instructions; keep certified-mail receipts and copies of everything.
- Allow weeks to months for a response; use the IRS account transcript or contact channels to confirm receipt.
Note: Form 843 is commonly used to request abatement for both penalties and certain interest claims, but not all interest abatement requests are accepted via Form 843—always read the form instructions and IRS guidance before filing.
When to consider alternatives instead of (or alongside) abatement
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If you cannot pay the balance while the abatement is pending, explore an installment agreement or an Offer in Compromise. Interest generally continues to accrue under installment agreements and Offers in Compromise unless specifically addressed by the IRS. See FinHelp’s guidance on installment vs OIC: Choosing Between an Installment Agreement and Offer in Compromise.
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If your situation fits penalty relief, start with a penalty abatement request—often the same packet supports both penalty and interest claims. Helpful internal guides: How to Request Penalty Abatement from the IRS and Preparing a Penalty Abatement Request: Documentation to Include.
Common mistakes to avoid
- Asking for interest abatement without confirming the legal basis—interest is statutory and rarely abated for taxpayer error.
- Failing to attach IRS notices, transcripts, or proof of circumstances (medical records, FEMA declarations, etc.).
- Waiting too long—some relief windows and refund rules have time limits; act promptly and check form instructions.
Quick professional tips (from practice)
- Document everything and create a timeline of events. A clear timeline plus corroborating documents substantially strengthens reasonable-cause and error-based claims.
- If the IRS caused the delay (e.g., prolonged processing of a timely-filed return), request an account transcript and reference specific processing delays in your Form 843 statement.
- Work with a CPA or tax attorney for complex cases (large balances, business accounts, or mixed penalty-and-interest claims). I’ve successfully used precise timelines and transcripts to secure interest adjustments for clients when the IRS was at fault.
Resources and authoritative references
- IRS — Interest Rates: https://www.irs.gov/payments/interest-rates
- IRS — About Form 843: https://www.irs.gov/forms-pubs/about-form-843
- IRS Publication 971 (disaster relief): https://www.irs.gov/pub/irs-pdf/p971.pdf
- IRS — Penalty Relief (First-Time and Reasonable Cause): https://www.irs.gov/individuals/penalty-relief-first-time-penalty-abatement
Professional disclaimer: This article is educational and not individualized tax advice. For guidance tailored to your facts, consult a qualified tax professional or attorney.
