Can you abate tax interest?
Here’s the facts: An IRS agent told a taxpayer, an executor of an estate, that the estate could abate (or reduce) interest on back-due tax debts because of long delays in receiving money to pay the IRS from a Croatian probate court.
Finally, after several years, the estate received the money and paid off the tax debt. The estate then went to abate the interest. The IRS refused. The estate filed a petition in tax court.
The tax court refused to abate — even though an IRS agent told him the estate it could reduce the interest due.
So if you can’t even abate interest when the IRS says you can, is it ever possible to abate interest? Well, it is a pretty difficult test, but it is possible (without an act of Congress)…it only requires the following:
26 USC 6404(e)(1) provides that the Secretary may abate the assessment of interest on any payment of tax to the extent that any unreasonable error or delay in such payment is attributable to an officer or employee of the IRS being erroneous or dilatory in performing a ministerial or managerial act. The Secretary may abate the assessment of interest only when no significant aspect of the error or delay is attributable to the taxpayer. Sec. 6404(e)(1) . A ministerial act is a procedural or mechanical act that does not involve the exercise of judgment or discretion and occurs during the processing of a taxpayer’s case after all the prerequisites to the act, such as conferences and review by supervisors, have taken place.
So in this case, because the IRS Agent didn’t delay or somehow cause the debt to incur, the agent only gave bad advice. The reason the debt incurred was the Croatian probate court.
If the IRS’ actions were the cause for the interest accruing, and those actions were found to be arbitrary and capricious, then the interest could be abated.
Essentially in this case, the interest would have been due, regardless of the actions of the Revenue Agent. The Revenue Agent was not responsible for the interest debt incurring, and had no authority to lessen the interest.
So just because someone at the IRS says you can do something, doesn’t mean you absolutely can!