“A couple of weeks later, I was sent a letter stating changes to my 2009 form 1040. The letter said " We changed your 2009 form 1040 to correct your: Penalty due to reasonable cause (interest is charged on any unpaid tax and my not be removed for reasonable cause). Basically they added the interest charges back on and abated the penalty charges. "-----? The IRS can eliminate or reduce a penalty for a reasonable cause if you request it. The term the IRS uses for wiping out a penalty is abatement. About one-third of IRS-imposed penalties are later canceled (abated). Reasonable cause is any excuse that an IRS officer will buy. The Internal Revenue Manual says: Death or serious illness of the taxpayer or … immediate family; Unavoidable absence of the taxpayer; Taxpayer was unable to determine amount of deposit of tax due for reasons beyond taxpayer’s control; Other explanations may be acceptable …. Acceptable explanations of delinquency are not limited …. Any reason … established that the taxpayer exercised ordinary business care and prudence but was nevertheless unable to comply within the prescribed time will be accepted as reasonable cause or etc.
“So my question is, because I did not file my 2008 taxes and did not claim my tax refund of $6,000 until 2010, is there anyway I can get the interest charges from 2009 abated considering the amount owed to me in 2008 was greater than what I owed in 2009?”---->AS you can see, You have three years to make any corrections that result in additional tax refunds. That's because there's a three-year statute of limitations on issuing tax refund checks.You need to enter on line 22 the amount, if any, from line 20 you want applied to your estimated tax for next year or etc since you need to file both 2008 and 2009 amended returns; You will be notified if any of your overpayment on line Form 1040X line 20 was used to pay past due federal or state(if yor are subject to state tax debt) debts so that you will know how much was applied to your federal and state debts.Then No interest will be paid on this overpaid amount(the refund amount).
“I know this is not the fault of the IRS because It was my fault for not filing and claiming my refund in 2008. I'm just wondering if I have any options because I was told that the IRS is not allowed to abate interest for reasonable cause because of a law passed by congress.”----> Interest, however, is rarely abated. By law, interest can be canceled only if it was erroneously applied or if it was due to lengthy IRS delays. Additionally, if you qualify for an Offer in Compromise, the IRS may reduce an interest charge or penalty along with the tax due. If a tax or penalty is canceled for any reason, interest on it is wiped out as well. Usually the IRS computer does this automatically, but check your bill to make sure. The tax code authorizes the abatement of interest only in A) The IRS was wrong in charging interest —meaning that either you paid the tax when it was due or didn’t owe any taxes on which interest could be charged. B) The interest resulted from delays of the IRS in performing ministerial acts. C) The interest accrued more than 18 months after the original due date of a tax return or the date the return was filed, and the IRS did not notify you that additional tax was due during that period.D) The interest accrued on a return you filed late because you were living in a federally declared disaster area when the return was due. However, as with taxes and penalties, interest also may be reduced or eliminated by an Offer in Compromise or through bankruptcy. I guess you may need to contact your Tax attorney for more advice.