Question: I am on a re-payment plan but the interest and penalties are adding up to more than my original debt and going up fast. How can I remove penalties but keep paying my taxes only? Is there a hardship form or another form I can complete to have IRS remove fees and penalties?
Answer: Penalties and interest continue to accrue while there is an installment agreement is in place. On average, the penalties and interest add up to be 8% annually. Similar to credit cards, if only the minimum payment is made, the total amount of penalties and interest may add up to original tax over a long period of time.
There is no way to apply payments toward the tax only while you are in an installment agreement. This is a stipulation in the IRS installment agreement terms and conditions.
You do have the option of requesting an abatement of penalties for reasonable cause. Interest can not be negotiated as the IRS has no legal authority to remove interest. Click here for more information on IRS Penalty Abatement.
The IRS does have an offer in compromise program. If you qualify, an Offer in Compromise is an program to settle your IRS taxes for less. Click here for more information on the Offer in Compromise program.