Indeed, the IRS’s interest rate is significantly higher than the usual market rate. This means that most banks and even some credit card companies charge less interest than the IRS does!

Additionally, late payment penalties can add up quickly. As of January 1, 2007, the late payment fee was 1/2 of one percent for each month (or portion of a month) that you were late. The penalties continue to increase every month, until you reach the IRS’s maximum penalty of 25 percent. In other words, a $1,000 tax debt could quickly escalate into a $1,250 bill, even before interest fees are attached. What's more, these late fees can increase if the IRS believes you "significantly" understated your taxes, and climb even higher if they believe you "fraudulently" reported your taxes.

While these late fees are a significant earnings boost for the IRS, which racks-up about $6 billion annually just on collected late penalties, the charges can quickly become a major burden for you.

But there is good news! You or your tax preparer may be able to file for a penalty abatement, which would could reduce or eliminate your late payment penalties. (Unfortunately, the congress-mandated interest fees are rarely reduced or eliminated.)

The IRS has several circumstances for which it will accept penalty abatement petitions. Such circumstances include you not being able to pay your tax debt due to circumstances that are beyond your control (for instance, because you were unemployed), you or a loved one experienced a serious illness or injury that prevented you from paying the IRS, your records were destroyed by fire or some other disaster beyond your control, or you sought to receive information from an IRS employee but were misinformed or unable to receive the information you requested, among other situations.

Like several other tax matters, you may be able to request penalty abatement for yourself, but you should consider speaking to a tax professional first. Tax pros are generally very familiar with how the IRS works and can quickly tell you if you are eligible for penalty abatement. A tax professional’s experience may also be beneficial in crafting your abatement letter in such away that it is complete and includes all of the information the IRS needs to approve your request.

If you would like to talk to a tax professional and see if you are eligible for penalty abatement, fill out our form. It’s fast, free, and easy- and there is no obligation!