The word “abate” means to lessen, reduce, or remove. Abatement of an assessment also carries the same meaning. That is, an IRS assessment may be lessened, reduced, or removed under certain circumstances, including a showing that the assessment is:
- Excessive;
- Assessed after the expiration of the statute of limitations;
- Erroneous or illegal
It is important to note that an assessment that has been abated cannot be reversed. If the abatement was a mistake or improper, the proper procedure to make the correction is not to reverse the abatement but to reassess the liability.
Several other provisions of the Internal Revenue Code cover instances when there may be an abatement of an assessment.
Income, Estate, or Gift Taxes
As a general rule, a taxpayer cannot claim abatement for assessments covering income, estate, or gift taxes. That does not prevent the IRS from considering such requests, however, provided that the request covers amounts that remain unpaid. Hence, instead of the longer route of requiring the taxpayer to file the tax and pay the amount, then issuing a refund, the IRS may sometimes simply abate the assessment of the unpaid amounts.
Small Tax Balances
The collection of taxes carries with it its own costs. But when those costs are significantly greater than the amounts to be collected, the IRS may sometimes simply abate the assessment. These are called “small tax balances,” as the name implies, referring literally to the amounts of tax liabilities that are due.
It should be mentioned that this kind of abatement is not, in any way, an admission of an erroneous or improper assessment. For all intents and purposes, the taxpayer’s liability is still on the record, as well as the assessment of the taxpayer’s deficiency. The abatement has to do, simply with a balancing of the costs and benefits of actually collecting the deficiencies owed where the costs outweigh the benefits.
Unreasonable Error or Delay
Sometimes, assessments may be colored by errors or delays on the part of the IRS agent or employee. If there are any errors or delays, due to no fault of the taxpayer, and such error or delay is “unreasonable,” the assessment of interest may be abated.
What is considered an “unreasonable delay” depends on the relevant circumstances in each case.
Lack of Sufficient Notice to the Taxpayer May Suspend Accrual of Interest
When the taxpayer was not given sufficient notice, such that the taxpayer was never properly informed of the amount due and the basis for his liability, within 36 months of the due date of the return, or the date the return was filed, whichever comes later, then suspension of interest may be proper.
Suspension, in this instance, however, only applies to the accrual of interest and other time-sensitive penalties. It does not impact the principal amount.
The term used for this circumstance is suspension, not abatement, which means that once proper notice is given to the taxpayer, then the accrual of interest and penalties may resume.
Review of Denial of Request for Abatement of Interest
Taxpayers may request abatement of interest on their tax liabilities. Should the IRS deny their request, taxpayers and their tax attorneys may seek judicial review of the denial from the United States Tax Court.
The Tax Court’s review of the denial is confined to the issue of whether the Secretary’s action in denying the abatement request was an abuse of discretion.
If the Tax Court finds that there was an abuse of discretion, the court may order the abatement.
Such an action requesting judicial review of the denial of the request for abatement must be brought any time after the date of the mailing of the Secretary’s final decision, or 180 days after filing the claim for abatement with the Secretary. In either case, the action should be brought no later than 180 days after the date of mailing of the Secretary’s final determination.