What Happens to Interest and Ongoing Penalties When You Apply for Abatement?

When you secure penalty relief from the IRS, whether through First-Time Abatement (FTA) or a reasonable-cause waiver, it’s important to understand exactly what you’ve removed and what remains on your balance. Abatement stops the penalties assessed up to the date of your request, but it does not pause interest or prevent new charges from accruing on any unpaid tax. Here’s how the pieces fit together and what you can do to keep future costs under control.

Interest continues to grow until your tax is paid.

Even after penalties are wiped away, the underlying tax debt still accrues interest from the original due date until the IRS receives full payment. Unlike penalties, which the IRS may waive entirely under FTA, interest is a statutory charge calculated daily at the federal short-term rate plus three percentage points, and it compounds each day. In practical terms, this means that every day you leave a balance unpaid, your total obligation inches higher regardless of whether penalties have been abated.

New penalties resume as soon as relief is granted.

FTA removes only the penalties assessed up to the moment you ask for relief. If your tax remains unpaid, failure-to-pay penalties (0.5% per month of the outstanding amount) begin accruing again on the day after your abatement request. Because you have already filed for that tax period, failure-to-file penalties no longer apply, but any late-payment penalties will continue until the debt is satisfied.

Can you request abatement again?

Generally, FTA is available only once per taxpayer per three-year period and only for one tax period. If you’ve used FTA already, you can still apply for a reasonable-cause waiver, demonstrating circumstances beyond your control such as a serious illness or natural disaster. Reasonable-cause waivers are granted sparingly, and you will need to provide thorough documentation to support your claim.

Final Thoughts

Understanding the relationship between interest, penalties, and abatement is essential to managing your IRS balance effectively. While penalty relief can offer significant savings, it does not stop interest or prevent new penalties from accruing. By taking prompt action such as paying down the principal, setting up a solid payment plan, and monitoring your account, you can minimize the ongoing cost of your tax debt.

At the Law Office of Steven N. Klitzner, we help clients evaluate their options for penalty relief, negotiate payment plans, and develop tailored strategies to resolve tax debts with the IRS. Contact us today to see how we can guide you through the abatement process and keep your future costs under control.