IRC §6404 - Abatements of Tax, Interest, and Penalties

 IRC §6404 is the Internal Revenue Code (IRC) section on abatements of tax, interest, and penalties. Which part matters depends on what you're working on, so here is a quick map:

§6404(a): General abatement authority

• The IRS may abate any assessment that is excessive, assessed after the limitations period expired, or erroneously or illegally assessed.

§6404(b): No claim for abatement of income, estate, or gift tax

• No claim for abatement may be filed for income, estate, or gift taxes. Taxpayers use other avenues (e.g., amended returns, audit reconsideration, refund claims).

§6404(c): Small balances

• The IRS may abate uncollectible amounts when administration and collection costs would exceed the expected recovery.

§6404(e): Interest abatement for unreasonable IRS errors or delays

• Applies to interest attributable to unreasonable errors or delays by an IRS employee in performing a ministerial or managerial act.
• Only applies after the IRS has contacted the taxpayer in writing about the deficiency or payment (for deficiencies, the period begins after that notice).
• The taxpayer must not have significantly contributed to the delay.
• §6404(e)(2) extends this to unreasonable delays or errors due to erroneous written advice (in some contexts).
• Tax Court review is available under §6404(h) (petition within 180 days of the IRS's final determination; the case is filed via Form 5/ standard petition procedures with jurisdiction limited to cases where the net worth and size limits in §7430(c)(4)(A)(ii) are met).

§6404(f): Abatement for erroneous written advice

• Penalties and additions to tax can be abated if they resulted from reasonable reliance on written advice from the IRS (the advice must have been in response to a specific written request by the taxpayer, and the taxpayer must have provided adequate and accurate information).

§6404(g): Suspension of interest and certain penalties

• Interest, failure-to-file, failure-to-pay, and certain other penalties are suspended if the IRS fails to send a notice of liability within 36 months of the later of the filing date or due date (without extensions). It does not apply to fraud, listed transactions, or cases where the taxpayer's underreported income is significant (the statute has several exclusions).
• Suspension ends 21 days after the IRS sends the notice.

§6404(h): Tax Court review

• Provides Tax Court jurisdiction to review the IRS's refusal to abate interest under §6404(e). The petition must be filed within 180 days after the IRS mails its final determination.

§6404(i): Authority to abate interest on certain disaster-related situations (and related provisions)

A few practical points in collection resolution work:

• First-time abatement (FTA) for penalties is an administrative policy under the Internal Revenue Manual (IRM 20.1.1.3.3.2.1), not a statutory provision of §6404. Reasonable cause relief comes from §6651 and §6724, among others.
• Interest abatement under §6404(e) is requested on Form 843, and the request should identify the specific ministerial or managerial act and the period of delay.
• Interest abatement requests are often limited by the "ministerial or managerial" definitions in Treas. Reg. §301.6404-2.

Tax Court Help irs-interest-abatement-section-6404

Referral Fees: Justifiable or Unethical?

credit: Thomas A. Gorczynski
Referral Fees: Justifiable or Unethical?
Should tax practitioners pay referral fees to other practitioners?
September 16, 2026
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The Gorczynski Group LLC attended two of the IRS Nationwide Tax Forums this year: Chicago and San Diego. One of the advertised opportunities was that I am happy to accept case referrals for IRS and U.S. Tax Court representation engagements.

I was surprised when every single tax professional who asked about referrals demanded to know what referral fee they would earn for sending a client to me to handle a matter that the tax professional admitted they did not have the knowledge, experience, or license to handle themselves.

While I appreciate every referral I receive from a colleague, I refuse to pay referral fees because I believe there are ethical issues inherent in doing so.

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Ethical Standards
Circular 230 does not address referral fees at all. §10.27 prohibits unconscionable fees and restricts contingent fees; nothing in prohibits referral fees or requires disclosure of referral fees.

The AICPA Code of Professional Conduct addresses referral fees directly. The Commissions and Referral Fees Rule (ET §1.520.001) prohibits commissions only for attest clients; referral fees between professionals are governed by paragraph .04:

Any member who accepts a referral fee for recommending or referring any service of a CPA to any person or entity or who pays a referral fee to obtain a client shall disclose such acceptance or payment to the client.

The rule permits a CPA to pay or accept a referral fee, but the obligation runs in both directions: the CPA who pays to obtain the client must disclose the payment, and the CPA who accepts a fee for the recommendation must disclose it as well. Neither side of the transaction can be kept from the client.

The NAEA Code of Ethics and Rules of Professional Conduct takes the same approach for enrolled agents. Rule 12 states in part:

No Member or Associate will accept or pay a commission for the sale or referral of products or services to a client unless they are properly licensed and all facts are fully disclosed in writing to the client.

The U.S. Tax Court goes further. Tax Court Rule 201(a) requires practitioners before the Court to practice “in accordance with the letter and spirit of the Model Rules of Professional Conduct of the American Bar Association.” ABA Model Rule 7.2(b) provides that a lawyer “shall not compensate, give or promise anything of value to a person for recommending the lawyer’s services,” subject to narrow exceptions. A USTCP cannot pass a tax professional for a U.S. Tax Court engagement referral.

The standards that permit referral fees require written disclosure to the client, and the standard governing U.S. Tax Court practice prohibits them. Not one practitioner who asked me about a referral fee offered mentioned disclosing it to the client in writing.
Referrals and Competence

Circular 230 §10.35 requires a practitioner to “possess the necessary competence to engage in practice before the Internal Revenue Service.” A practitioner who lacks the knowledge, experience, or license for a federal tax matter has two options:
1. Gain competence through education and/or consultation, or

2. Decline the matter and refer the client to someone competent.

A referral often is the referring practitioner meeting their own ethical obligation. Demanding payment to meet an ethical obligation turns the relationship backward.
Taxpayer’s Best Interest Comes First

A referral fee changes the question the referring practitioner asks. Without one, the question is “who is best for this client?” With one, it is “who will pay me the most for this client?” They are not always the same person, and the client cannot tell which question was asked unless the fee is properly disclosed.

Here’s the truth: the client ultimately pays the referral fee because a practitioner who passes a portion of the engagement fee to the referring practitioner is pricing the referral fee into the engagement fee.

Eliminating the Scarcity Mindset
The referral fee demand comes from a scarcity mindset: a belief that any client walking out the door, even for a matter that cannot be handled by the practitioner, is lost revenue that must be recovered somehow. It is not.

A client referred to a competent professional for representation or advisory matters returns to the referring practitioner for tax return preparation, usually with a stronger relationship, because the practitioner solved a problem.

Referrals run in both directions. A practitioner who refers out matters beyond their expertise without expecting anything in return builds relationships with the professionals who receive those referrals, and those professionals send work back because the relationship rests on trust and competence, not on a ledger.

A referral made for the client's benefit is the best business development a tax professional can do, and it costs nothing.

**Judicial estoppel** / **Collateral estoppel** (issue preclusion) / **Equitable estoppel**

 Here's how the three separate out:

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**Judicial estoppel** —

 bars a party from taking a position *inconsistent with one it successfully argued and won on* in an earlier proceeding.

• Why is it called that?

Judicial: 

 Relating to a [court] or [judge] (from the Latin judicium).

Estoppel: 

 A legal principle that [stops] or ["plugs"] someone from contradicting what they previously established as true (from the Old French estouper, meaning "to stop up" or "plug"). Purpose: 

  Protect the integrity of the courts, stop parties from "playing fast and loose." 

Elements: 

(1) clearly inconsistent later position, 

(2) the earlier position was *judicially adopted* (party actually succeeded on it), 

(3) unfair advantage if allowed. It doesn't require reliance by the other party — the "victim" is the court system itself. *New Hampshire v. Maine*, 532 U.S. 742 (2001).

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**Collateral estoppel (issue preclusion)** —

 Bars *relitigating an issue* that was actually litigated and necessarily decided in a prior case between the same parties (or their privies). 

  It's about the *issue*, not a party's position — and it applies whether or not the party "won." 

  Collateral estoppel, also known as "issue preclusion," is a legal rule that stops a party from arguing an issue of fact or law that a court already decided in a past case. 

• Elements generally: 

  Same issue, actually litigated, necessarily decided, final judgment, same parties/privity.

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**Equitable estoppel** —

 Bars a party from asserting a claim or right where its own conduct (a misrepresentation of fact) induced another party's *detrimental reliance*.

  This one is about protecting the reliant party, not the courts. Elements: 

• False representation, knowledge of the truth by the party estopped,

• Ignorance of the truth by the other party, intent that the other party act on it, and actual detrimental reliance. 

  Against the IRS specifically, equitable estoppel is rarely successful — courts require affirmative misconduct, not mere silence or an erroneous ruling.

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**The core distinctions:**

- Judicial estoppel =

 Protects the *court's integrity*, triggered by a party's own prior *success* on an inconsistent position.

- Collateral estoppel =

 Protects *finality of issues*, triggered by prior *litigation and decision* of that specific issue.

- Equitable estoppel =

 Protects a *party's reliance*, triggered by *misrepresentation + detrimental reliance*, no prior judgment needed at all.

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A quick tell for fact patterns: 

• No prior lawsuit involved

 → it's equitable estoppel or nothing. 

• Prior lawsuit, same issue decided

 → collateral estoppel.

• Prior lawsuit, party won by taking position X and now wants position Y 

→ judicial estoppel 

USTCP Q&A

2026 S-29 (1 point). 

TP owned unimproved land which she purchased 10 years ago. TP’s adjusted basis in the land was $20,000. On April 1, Year 1, TP donated the land to a qualified charitable organization. At the time of the donation, the fair market value of the land was $70,000. In Year 1, TP’s adjusted gross income is $100,000. 

 What is the amount of charitable deduction that TP will be able to use in Year 1 for donating the land? 

$70,000

 $30,000 

$20,000 

Zero 

None of the above 

 Points Awarded: $30,000.

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S-29: Why $30,000

The land is long-term capital gain property (held 10 years, appreciated from $20,000 to $70,000), donated to a public charity. For gifts of appreciated capital gain property to a 50%-limit (public) charity, the deduction is normally based on FMV, but it's capped at 30% of AGI for the year — not the usual 60% that applies to cash gifts.

30% × $100,000 AGI = $30,000 deductible in Year 1.

(She could instead elect to reduce the gift to basis — $20,000 — and use the 50%/60% AGI limit, but that election isn't the default and isn't what's being tested here; the standard FMV/30%-of-AGI answer is $30,000.)

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 (1/1)  2026 S-30 (1 point). 

TP owned unimproved land which she purchased 10 years ago. TP’s adjusted basis in the land was $20,000. On April 1, Year 1, TP donated the land to a qualified charitable organization. At the time of the donation, the fair market value of the land was $70,000. In Year 1, TP’s adjusted gross income is $100,000. 

 What is the amount of charitable donation that will carryforward? 

$70,000 

$40,000

 $20,000

 Zero 

None of the above

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S-30: Why $40,000 carries forward

Her total charitable contribution amount (the deductible FMV of the gift) is $70,000. She was only able to use $30,000 of it in Year 1 because of the 30%-of-AGI ceiling.

$70,000 total − $30,000 used = $40,000 carryforward

This carries forward up to 5 additional years, subject each year to the same 30%-of-AGI limit for that type of property, until it's fully absorbed or expires.

Thank you President Donald Trump

THE GOLDEN AGE OF AMERICA HAS ONLY JUST BEGUN!

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NO TAX ON TIPS, NO TAX ON OVERTIME, NO TAX ON SOCIAL SECURITY. Strongest Border in the History of our Country - 15 months, zero releases. Safest Communities in decades, lowest murder rate in 125 years. More jobs, record investment pouring in, American Energy Dominance, and Peace through Strength restored.

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Promises made, promises kept.

How many Accountants does it take to change a lightbulb?

Q: How many Accountants does it take to change a lightbulb?

A1: How many do you want it to take?

A2: How many did it take last year?
A3: What number did you have in mind?

USTCP Q&A

Q:  "The evidence section of the exam has questions like this: 'On cross-examination, IRS asks taxpayer's brother if he lied about his university degree on his job application two years ago. Taxpayer objects. How should the Tax Court rule?'

A: This is a classic FRE 608(b) fact pattern — testing whether you know the difference between asking about a specific instance of untruthful conduct and proving it up.

Ruling: Objection overruled. The court should allow the question.

Why:

FRE 608(b) governs this exactly. The general rule is that specific instances of a witness's conduct, offered only to attack or support the witness's character for truthfulness, cannot be proved by extrinsic evidence. But the rule carves out an exception for cross-examination itself: the court has discretion to allow inquiry into specific instances on cross-examination if they're probative of the witness's character for truthfulness or untruthfulness.

Lying about a university degree on a job application is a classic example of conduct probative of untruthfulness — it's a deliberate misrepresentation for personal gain, which fits squarely within what 608(b) is aimed at (as opposed to, say, a prior traffic violation, which wouldn't qualify).

So the mechanics here:

• Asking the Taxpayer on cross whether he lied about his degree → permissible, subject to the court's discretion, because it's inquiry into conduct probative of untruthfulness.
• If he denies it → the examiner is stuck with the answer. IRS cannot then bring in extrinsic evidence (documents, another witness) to prove he actually lied. That's the "extrinsic evidence" bar in 608(b) doing its work.

A few things the exam likes to test around this pattern that are worth having cold:

• 608(b) instances must go to truthfulness, not general bad character — a fistfight or a DUI wouldn't qualify, but fraud, lying on a resume, or falsifying records would.
• This is distinct from 609, which deals with impeachment by criminal conviction — no conviction is mentioned here, so 609 isn't in play.
• The rule limits this to cross-examination of the witness himself (or someone whose character the witness testified about); you can't just call a rebuttal witness to testify "he's a liar, I know because of the resume thing."
• Tax Court, per its own Rules of Practice and Procedure, generally follows the FRE (see Tax Court Rule 143), so this isn't a special Tax Court carve-out — it's straight federal evidence law.

What comes after a CP14 Letter in the IRS collection stream?

What comes after a CP14 Letter in the IRS collection stream?

  The notice that immediately follows a CP14 letter in the IRS collection stream is the CP501 notice, which serves as the first balance-due reminder. [1, 2] If you do not respond or pay the balance, the IRS will advance your case through a standardized, escalating sequence of collection letters. [1, 2]
The Standard IRS Individual Collection Stream
• CP14 (Initial Notice):
︎  Sent as the official "Notice and Demand for Payment". You have 21 days to pay or respond. [1, 2, 3]
• CP501 (First Reminder):
︎  Arrives roughly 4 to 6 weeks after the CP14 if the balance is unpaid. It updates your total with newly accrued interest and penalties. [1]
• CP503 (Second Reminder):
︎  Sent approximately 4 to 6 weeks after the CP501 if the IRS still receives no response. [1, 2, 3, 4]
• CP504 (Intent to Levy):
︎  This is a severe, urgent notice. It states the IRS's intent to levy your state tax refund and assets if the debt is ignored. [1, 2, 3, 4, 5]
• LT11 / Letter 1058 (Final Notice):
︎  The final step before active enforcement. It gives you 30 days to pay or file a Collection Due Process (CDP) hearing to stop wage garnishments or bank levies. [1, 2, 3]
• Immediate Actions You Can Take:
  You can halt this collection sequence at any point by choosing one of the following options on the IRS Online Account portal: [1] 
https://www.irs.gov/help/tools

• Pay in Full:
Stops all future collection stream notices instantly.
• Setup a Payment Plan:
Apply for an Online Payment Agreement (OPA) to pay monthly.
• Dispute the Debt:
  Submit documentation if you believe the IRS calculated the amount incorrectly or if you already paid. [1, 2, 3]
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[1] https://www.omnitaxhelp.com/irs-cp14-notice/
[2] https://ietaxattorney.com/irs-collections-process-explained/
[3] https://www.taxhardshipcenter.com/blog/irs-notice-severity-guide/
[4] https://americaschoicetax.com/https-americaschoicetax-com-irs-notice-timeline-what-happens-after-cp14-in-2026/

USTCP Q&A

Question #1 -- Under the  Bipartisan Budget Act, (BBA), if a partnership receives a penalty, are the individual partners liable for that penalty? 

 Question #2 --Under BBA, can the IRS assess penalties directly at the partner level.

**Q1: No, not by default.** Under BBA (the centralized partnership audit regime, IRC §6221–6241), any imputed underpayment resulting from a partnership adjustment — including any related penalty, addition to tax, or additional amount — is determined, assessed, and collected at the partnership level [Freeman Law](https://freemanlaw.com/partnership-representatives-and-partnership-audits-the-bipartisan-budget-act-bba/imputed-underpayments/) , not against individual partners. The imputed underpayment is a liability of the partnership itself rather than the relevant partners. [AICPA & CIMA](https://www.aicpa-cima.com/resources/article/partnership-audit-and-adjustment-rules)

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Individual partners become liable only in specific exceptions:

- **Push-out election (§6226):** The partnership elects to push adjustments (and penalties) out to the reviewed-year partners, who then report and pay their share on their own returns. Making a push-out election shifts the liability to pay an imputed underpayment from the partnership to the reviewed-year partners. [BDO](https://www.bdo.com/insights/tax/the-centralized-partnership-audit-regime-increased-irs-focus-on-partnerships-is-here)

- **Valid election out of BBA (§6221(b)):** Eligible small partnerships (100 or fewer partners, all eligible partner types) can elect out annually on a timely Form 1065, reverting to standard deficiency procedures against each partner individually. A partnership is subject to BBA unless it is an eligible partnership and makes an annual election out of BBA on a timely filed Form 1065. [irs](https://www.stayexempt.irs.gov/vi/newsroom/irs-launches-bba-centralized-partnership-audit-webpage)

- **Inconsistent reporting:** A reviewed-year partner who files inconsistently with the partnership's return and is individually audited (without a partnership-level audit) can be personally liable. [BDO](https://www.bdo.com/insights/tax/the-centralized-partnership-audit-regime-increased-irs-focus-on-partnerships-is-here)

- **Partnership ceases to exist or fails to pay:** Partners in a later year may become liable if the partnership terminates under §708(b)(1) or fails to pay the amount due within 10 days of notice and demand. [BDO](https://www.bdo.com/insights/tax/the-centralized-partnership-audit-regime-increased-irs-focus-on-partnerships-is-here)

---

**Q2: Generally, no.** The IRS assesses penalties at the partnership level as part of the imputed underpayment calculation — it doesn't directly assess partners unless one of the exceptions above applies (push-out election, valid opt-out, inconsistent reporting, or partnership default/dissolution). That said, partners can raise certain partner-level defenses (e.g., reasonable cause) during the modification process or after a push-out, even though the initial determination happens at the partnership level.

  Worth noting: a valid BBA election-out doesn't exist retroactively — it has to be made annually on a timely filed return, so this matters for how you advise clients going into a filing season versus mid-audit.

---

The **push-out election** (IRC §6226) is an alternative to the partnership paying the imputed underpayment (IU) itself. Instead, the partnership shifts responsibility for the tax to the **reviewed-year partners** — the people who were partners in the year under audit, not necessarily the current partners.

**How it works:**

- Within **45 days** of receiving the final notice of partnership adjustment (FPA), the partnership must make the election on a timely filed statement.

- The partnership issues each reviewed-year partner a **statement** (Form 8986) showing that partner's share of the adjustments.

- < cite index="7-1">A partnership making a valid push-out election is no longer liable for the imputed underpayment to which the election applies.</cite>

- Each reviewed-year partner then takes their share of the adjustment into account on their **own return for the year that includes the date the statement was furnished** — not by amending the reviewed year. < cite index="7-1">The reviewed-year partner must pay any additional chapter 1 tax for the taxable year that includes the date the statement was mailed.</cite>

- Partners generally owe **tax plus interest**, and the interest rate is 2 percentage points higher than the standard underpayment rate (a cost of choosing push-out over partnership-level payment).

**Why partnerships choose it:**

- Avoids having current partners bear the cost of adjustments that relate to a prior partner group (important after ownership changes/buy-ins/buy-outs).

- Lets partners with lower individual tax rates or favorable attributes (NOLs, credits) absorb the adjustment more efficiently than a flat partnership-level payment.

- Preserves each partner's ability to raise their own defenses (reasonable cause, etc.) on their share.

**Trade-offs:**

- More administrative burden — separate statements to every reviewed-year partner, correct calculations, timely furnishing.

- If not done correctly or timely, the election can be considered invalid, and liability reverts to the partnership by default.

- The premium interest rate makes it more expensive per dollar than if the partnership just paid the IU outright, so it's often a liquidity/fairness trade rather than a pure cost-saver.

  This is the mechanism your BBA partnership clients would use to keep an audit adjustment from unfairly landing on new partners who weren't around in the reviewed year.

Stephen B. Jordan, EA

Stephen B. Jordan, EA is a tax preparation and tax resolution service established in 1987 with over 40 years of experience. The firm specializes in providing tax return preparation, tax planning, and tax resolution services for both individual and small business clients. We utilize a confidential data transfer portal for document uploads and offer a tiered fee structure based on the complexity of tax returns. With a commitment to accuracy, accountability, and affordability, we aim to simplify the tax process and provide year-round support to our clients.