Wondering About Interest Rates Charged by the IRS? Here Are The Rules.

The IRS charges high penalties and interest when you owe taxes. Usually it's hard to determine the rate, since there isn't a standard percentage that they go by. However, use the rules below to help guide you in figuring out or checking your interest:

1. The IRS changes the interest rate it charges each quarter. The rate is determined by taking the federal standard rate plus 3%. Currently for the first quarter of 2009, the rate is 5%. The IRS interest rate has ranged from 5% to 9% in the past 6 years. The amount of interest is computed based on the rate applied in each quarter to the amount owed.

2. The IRS changes this rate each quarter and publishes it in their Internal Revenue Bulletin. See this bulletin for this quarter's update.

3. The interest rate is compounded DAILY.

4. Interest is charged on the taxes and penalties assessed.

5. The interest rate does not change when you get into enforcement or into an installment agreement(IA). What changes during enforcement or an IA is the "failure to pay" penalty rate.

6. Interest is still charged when your are in currently not collectible or any other "collection hold" status.

7. If you are a large corporation, your interest rates is higher.

8. Any other interest rate remains at the standard federal rate plus 3% unless the you have a balance from a "tax shelter". In that case the IRS charges 120% of the rate - i..e. 6% now.

Hope this help!
-The Good Tax Helper

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.