Thursday, January 10, 2008

Why You're Paying Interest

I would say that one out of every four phone calls that I receive is a taxpayer requesting that we help them eliminate the penalties and interest that have piled up against them. What really gets me is that they believe the interest shouldn't be there. The IRS is not a bank. They are not loaning you money and they firmly believe that all money due to them should have been paid since day 1.

"But why do I have to pay interest on the money I owe the IRS?" When you owe someone or some institution money and you do not pay in full, interest is going to be tacked on. It's no different than a credit card. If you make that minimum payment, there's going to be interest. When it comes to backtaxes though, you will have interest and penalties.

Concerning your backtaxes, the interest is compounded daily and is charged on any unpaid tax from the due date of the return until the date of payment. There's no getting around it. The interest rate is the federal short-term rate plus 3 percent. That rate is determined every three months. If you would like to know the current interest rates, you can visit News Releases and Fact Sheets and find the most recent Internal Revenue press release entitled Quarterly Interest Rates.

You cannot abate the interest, but there are effective programs if you choose to abate the penalties and there is reasonable cause. When taking this route, it would be best to seek out professional help. A tax resolution firm will have a staff of experienced tax consultants who know how to negotiate penalty abatements with taxing authorities.

Cheers!
Taxus

As always, you can find an array of articles by perusing this site or by checking out my coworkers' individual sites:

IRS MIND
Tax Negotiation
Tax-Thoughts
Little Miss Tax Lass
Tax Settlement

And if you need the assistance of a tax resolution firm, seek out the best: Effectur, Inc.

3 comments:

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Ecuskully02 said...

Ok so I noticed that you said the interest rate is the federal short-term rate plus 3 percent but is there an average I can use when calculating the interest due? Also if I file for an extension does that mean that I get an extension on the interest and penalties as well? Thanks for the great info and I hope I'm not asking to hard of a question.

TippyTaxes said...

This article put’s it all into perspective. Nothing in life is free, especially IRS loans.