The IRS is a stickler for requiring federal income tax payments to be made in full and on time. If taxpayers don’t meet their obligations, they are often assessed interest and penalties on top of the tax that hasn’t been paid, but you may be able to secure an interest abatement if certain conditions exist. On the other hand, as shown in a new case, Matto, TC Memo 2026-60, 7/21/26, you can’t just take the word of an IRS agent for it.
Summary:
- IRS Rules & Abatements: The IRS imposes interest on unpaid taxes, but taxpayers can request an interest abatement using Form 843 if the IRS caused unreasonable delays or errors.
- Case Background (Matto, TC Memo 2026-60): A married couple owed $5,400 in interest after filing an amended 2020 return to account for an Employee Retention Credit (ERC).
- Taxpayers’ Argument: They requested relief, claiming ERC adjustments should not trigger interest and that an IRS agent orally assured them no interest would be owed.
- Tax Court Decision: The court rejected the request, ruling that taxpayers failed to prove an IRS error or delay and that verbal advice from an IRS representative is not legally binding.
- Alternative Options: Taxpayers facing similar issues can explore other tax relief solutions, including the IRS Offer in Compromise program.
Background: If you owe tax to the IRS, interest begins to accrue on the outstanding balance going back to the initial due date However, if there are mitigating circumstances, the IRS may agree to waive or reduce the charges. The waiver or reduction may apply to a specified period of interest or the whole shebang.
Note that you can’t get off the hook simply by telling the IRS you inadvertently missed a deadline or that you’re in a financial bind. Generally, you may be eligible for relief if the interest is unreasonably excessive, is barred by federal law or has been illegally assessed. In addition, you may be granted an abatement if the IRS has made errors or caused unreasonable delays. Also, military personnel and victims of disaster may qualify for an interest abatement.
The request must be made by filing Form 843, Claim for Refund and Request for Abatement, with the IRS. Among other information required on the form, you must provide the applicable time period, the type of tax involved, the date of notification of interest charges imposed by the IRS and the reasons an abatement would serve “the interests of justice.”
Facts of the new case: A married couple, owners of two S corporations in the dental care field, filed timely income tax returns for the 2020 tax year. After receiving the employee retention credit (ERC), the couple was required to file an amended 2020 Form 1040-X. This resulted in increased tax liability of more than $37,000, which the taxpayers promptly paid, and about $5,400 in unpaid interest.
The couple filed Form 843, seeking an interest abatement. First, they argued that the interest should not accrue for the 2020 tax year because the adjustments were based on the subsequent ERC claim. Second, they testified that an IRS agent verbally informed them during a telephone conversation that they would owe no interest for the 2020 tax year. Thus, they should not be penalized.
“No dice” said the Tax Court. The couple could not show that interest had wrongly been charged due to an unreasonable IRS delay or error. And erroneous oral advice from an IRS representative isn’t legally binding.
Tax action: If you have clients in a similar fix, they may have other options at their disposal. For instance, they might be able to settle a tax debt, including interest charges, under the IRS Offer in Compromise (OIC) program. Investigate the possibilities on behalf of your clients.
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Tags: #taxtwitter, abatement, ERC, federal income tax, Income Taxes, IRS, tax court, tax news, Taxes
