I'm almost finished with a payment plan I've been on for a few years and just heard about First Time Abate. I called the IRS and requested it, and it was granted. It was actually pretty easy. However, the IRS agent (who really didn't seem to have a good grasp of anything) said it would cover the balance of my payment plan, which is only a few hundred dollars, but that I wouldn't get anything back. The penalties and interest I've paid are much more than the few hundred I currently owe, so I was expecting that having these waived would result in a refund. Is this correct, or does it really only cover the current (very small) balance? Should I try calling back or writing a letter? Should I just wait and see if a refund shows up?
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I don't think the IRS is going to return penalty funds that they have already collected. If you had known, you could have asked about the abatement earlier, but that's water under the bridge at this point.
It's also worth noting that if you owed tax, you also owed interest, and that can't be abated even if the penalty is abated. If the penalty is reduced or eliminated, the interest will be recalculated to cover just the tax, but you would still owe the interest. At this point, if they cleared your remaining balance (which included some percentage of tax, interest, and penalties) that's a pretty good result. You would have to recalculate your entire payment plan from the beginning with tax due and interest but no penalty, to see if you are really losing anything. It's always possible that they will do this automatically. And there is no harm in writing a letter explaining your argument, but you would need specific calculations showing how your payment would be applied to just the interest and taxes, to justify that you covered the amount owed.
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