If one files a successful Offer In Compromise, the entire liability, i.e. taxes, interest and penalties, is considered paid in full for the lesser amount of the compromise; therefore, the issue of forgiving interest and/or penalties never arises. Almost all Offers are for less than the actual tax owed, so the interest and penalties are completely eliminated by paying the Offer amount. Thus the Offer amount is accepted by the IRS without breaking up the total owed into tax, interest and penalties. On the other hand if one enters into an Installment Agreement, he will be expected to pay the total amount owed to the IRS, including interest and penalties (unless the Collection Statute expires before all the taxes are collected). The interest continues to accrue until the balance is paid in full and interest is never forgiven by the IRS in an Installment Agreement. However, the penalties assessed “max out” after a period of time. These sometimes are forgiven. To make a successful appeal to forgive penalties, one must have reasonable cause for being behind in payments, such as hospitalization, natural disasters, etc. Forgetting to pay and not having enough money to pay are not considered reasonable causes. Also, the IRS will not consider your request for abatement of penalties until the underlying tax is paid.