Interest and Penalties

Interest abatement on underpayments in disaster areas. For individuals living in an area declared a disaster area by the President after 1997, the IRS will abate interest on income tax for the length of any extension period granted for filing income tax returns and paying income tax.

Some individuals who were granted an extension may have been charged interest on income tax owed for 1997. To the extent possible, the IRS will identify individuals eligible for the retroactive abatement of interest. The IRS will make appropriate adjustments to their accounts, notify them when these adjustments have been made, and, where appropriate, refund interest paid.

If you are eligible for retroactive interest abatement but are not notified by the end of 1999 that interest has been abated, call IRS Customer Service at 1-800-829-1040 to request interest abatement. If you are eligible for interest abatement, you can also file Form 843, Claim for Refund and Request for Abatement, with the IRS Service Center where you filed your tax return.

For more information, see Disaster Area Losses in Publication 547, Casualties, Disasters, and Thefts.

Estimated tax penalty. You will not be subject to the estimated tax penalty unless the amount you owe with your 1998 return is $1,000 or more (up from $500).

For more information, see Publication 505, Tax Withholding and Estimated Tax.

Estimated tax penalty waived if due to new law. For estimated tax payments due on or before August 21, 1998, you will not have to pay a penalty for failure to pay estimated income tax to the extent your underpayment was created or increased by a provision of the IRS Restructuring and Reform Act of 1998.

Interest netting. For periods beginning after July 22, 1998, if you owe interest to the IRS on an underpayment for the same period of time that the IRS owes you interest on an overpayment, you will be charged interest at the overpayment interest rate on the amount of the underpayment up to the amount of the overpayment.

For periods beginning before July 22, 1998, the same rule applies if you reasonably identify and show the periods during which your underpayment and overpayment amounts are equal, and you request interest netting no later than December 31, 1999. This applies only if the applicable statute of limitations has not expired on either your underpayment or overpayment. To make this request, file Form 843.

Suspension of interest and certain penalties. For tax years ending after July 22, 1998, interest and certain penalties will be suspended if the IRS does not mail you a notice stating your liability and the basis for the liability within the 18-month period beginning on the later of:

• The date on which you timely filed the tax return, or
• The due date (without extensions) of the tax return.

For tax years beginning after 2003, the 18-month period will be reduced to 1 year.

The suspension applies to interest and penalties allocable to the period beginning the day after the close of the 18-month period and ending 21 days after the IRS mails you a notice stating your liability and the basis for the liability. Also, this suspension period applies separately to each notice received by you.

The suspension does not apply to any of the following.

• A failure-to-pay penalty.
• Any penalty, interest, addition to tax, or additional amount with respect to any tax liability shown on the return.
• A fraudulent tax return.
• A criminal penalty.

Under prior law, interest and penalties accrued on unpaid tax whether or not you realized that tax was due.

New Payee for Checks and Money Orders

If you pay your tax by check or money order, make it out to the "United States Treasury." Previously, you made it out to the "Internal Revenue Service."

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