Discretionary Removal

• The IRS has discretionary authority to reduce or eliminate the penalty and interest charges you accrue for paying your taxes late or not filing a tax return. Although there is no standard procedure for this, there are many reasons why the IRS will informally eliminate some of these charges. Generally, the IRS is more sympathetic to taxpayers who make an honest mistake on their return and make a good-faith effort to comply once the IRS points it out. However, it is unlikely the IRS will remove penalties and interest if it suspects that the mistake was intentionally done to avoid paying income taxes.
  
  

Appeal

• Although less than 2 percent of tax returns are audited each year, the IRS can assess additional tax after it examines your return. When it does this, it will also impose penalties and interest because technically, you paid your taxes late. However, once the audit is complete, you have the right to appeal the IRS agent's decision. If you convince the appeals officer that the IRS was incorrect, not only will your tax bill be reduced, but all penalty and interested charges will be reduced or eliminated.
  
  

Erroneous Written Advice

• In some cases, the IRS must remove the interest and penalties if the position you take on your tax return relates to written advice the IRS gave you for that particular issue. To qualify, you must have written to the IRS asking for advice on a specific issue, you provided full disclosure of all relevant facts, The IRS wrote back to you with a specific course of action to take and you follow that advice exactly. If the IRS later challenges the accuracy of this item, it has no choice but to reduce or eliminate all penalties and interest that relates to the specific tax issue you requested help with.
  
  

Reasonable Cause

• Sometimes, you may have a reasonable explanation for why you underpaid your taxes. If you send the IRS a written explanation that is acceptable, it may reduce or eliminate your penalties, but not the interest. Since every situation is different, each taxpayer may have a different reason for the underpayment. But when you request this type of relief, using common sense is likely to be most helpful. For example, the IRS will probably not reduce your penalties if you tell it you were on vacation on the deadline to file your return. However, if your post office was closed on April 15 because of a hurricane in your area, the IRS is likely to accept this as reasonable cause.