IRS Interest Charges – What They Are and When You Can Reduce Them

When you owe back taxes, the IRS doesn’t just wait patiently — they charge interest every single day your balance remains unpaid.

And if you're already stressed about the amount you owe, interest charges can make things feel impossible.



At Boulanger CPA, we help Oklahoma taxpayers understand how IRS interest works — and when it can be reduced or removed.

What Is IRS Interest?

IRS interest is the cost of owing money to the government.

It’s calculated daily and compounds over time, based on:

• The federal short-term rate plus 3%
  
  
• Accrual from the original due date of the return (not when the IRS sends a notice)
  
  

So if you filed late or didn’t pay on time, interest has been building from Day 1 — not from when you found out.

When Does the IRS Charge Interest?

Interest is added to:

• Unpaid tax balances
  
  
• Penalties
  
  
• Adjustments after audits or CP2000 notices
  
  
• Late payment plans
  
  

Even if you set up a payment plan, the interest doesn’t stop — it continues to accrue until the balance is paid in full.

Can IRS Interest Be Removed?

Here’s the short answer:

No — not directly.

But yes — in certain cases.

The IRS rarely removes interest unless one of the following applies:

1. You successfully remove the penalty

If a penalty is abated or reduced, the interest on that penalty is also removed.

2. The IRS made a mistake

If the IRS caused an unreasonable delay or incorrect action, you may qualify for interest abatement due to IRS error (very rare).

IRS Interest vs. Penalty — What’s the Difference?

• Penalty = A charge for not filing or paying on time
  
  
• Interest = Daily compounding charge on what you owe
  
  

Example:

• Owe $10,000
  
  
• Fail to file and pay
  
  
• Get hit with a $2,500 penalty
  
  
• IRS charges interest on both the $10,000 AND the $2,500
  
  

Real Example: Penalty Reduced, Interest Lowered

Client: Retail business owner in Moore, OK

• Owed $18,000 with $3,700 in penalties and interest
  
  
• We requested First-Time Abatement for penalties
  
  
• IRS approved, and interest dropped by $780 as a result
  
  

How to Reduce Interest (Indirectly)

To reduce interest, you must either:

• Eliminate the underlying penalty, or
  
  
• Pay your balance faster
  
  

Other strategies include:

• Offer in Compromise — If accepted, the remaining balance (and interest) is forgiven
  
  
• Penalty Abatement — Reduces both penalty and related interest
  
  
• Payoff acceleration — We help structure aggressive payoff timelines to save on interest
  
  

Need Help Understanding Your IRS Balance?

Many clients don’t realize how much of their IRS balance is interest. We can pull your transcript and show:

• Principal tax due
  
  
• Penalties
  
  
• Interest (by year)
  
  
• Collection dates and expiration timelines
  
  

📞 Call (405) 384-4900
📅 Schedule your tax relief review

✍️ About the Author



Marc Boulanger, CPA, is the founder of Boulanger CPA and Consulting PC, a CPA firm based in Oklahoma City, OK.

Marc is the author of Oklahoma Taxpayers' Guide: Taking a Stand Against the IRS and has resolved hundreds of complex federal and state tax cases.

With over a decade of experience in IRS and OTC representation, Marc helps Oklahomans navigate high-stakes tax problems with clear strategy and calm expertise.

He is a Certified Tax Representation Consultant and a member of the American Society of Tax Problem Solvers (ASTPS).

📍 Office: Oklahoma City, OK | 📞 (405) 384-4900 | 🌐 www.oklahomacity.cpa