I recently received notification from the IRS that we owe tax on unreported interest from inherited, redeemed HH bonds. We never received a 1099 INT and we were not aware of the taxable interest. We had been advised by the Department of Public Debt that we would receive face value of the bonds but were not told that a portion of the face value was deferred interest. This was in reference to our 2011 federal tax return. I have no dispute with paying the tax due, but do want to dispute the penalty and interest that has come to a considerable amount due to the time that has elapsed before I was notified. If there is a way to do this, how do I pursue it?
Appeal tax penalty and interest?
Aug 19, 2013
2 Replies
You probably can't do anything about the interest, but the IRS is fairly generous when it comes to a first time abatement of penalties. The trick is that you have to make the request after it has posted/accrued to your account. I don't remember what the exact word is that the IRS uses. Basically it means that the penalty has moved from the computer system that assessed the penalty to the computer system that holds your long term records. If you make the request before the penalty has reached the appropriate computer system, you won't get the refund. If this happens you will have to resubmit your request, and when you resubmit it will be considered to be a second request. The guidelines for granting abatement of penalties on a second request are considerably more stringent than on the first request; so you want to time it to avoid this situation. If you call the IRS they can tell you the status of your penalty. If the penalty has posted (or whatever the correct term is), ask to apply for the abatement over the phone.
If this is an additional tax assessment (and it sounds like it is), it won't be subject to failure to pay penalty until
21 days (10 days if $100,000 or greater) after notice and demand. Assuming the original return was filed timely, your first bill should represent only tax and interest. Abatement of interest for anything other than IRS error will be difficult.Join the Discussion
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