TC 361: Abatement of Fees and Collection Costs

By Forrest Baumhover, CFP®, EA · Last verified August 18, 2026

TC 361 reverses a lien or collection-cost fee assessed under TC 360 — but only when the IRS abates the underlying tax in full and the liability wasn’t the taxpayer’s fault to begin with. A negotiated-down audit result doesn’t qualify, even at a zero balance.

What the code actually does — and where its authority actually lives

TC 361 abates a previously assessed collection fee or cost — most often a TC 360 fee for filing a Notice of Federal Tax Lien (NFTL) — in whole or in part. The abatement authority for the fee specifically is IRM 5.12.3.5.6, NFTL Fee Abatements, which sits in a genuinely different subsection of the lien chapter than the one that describes the fee’s assessment in the first place. A practitioner who finds the assessment mechanics at 5.12.1.17 and assumes the abatement rule lives in the same neighborhood will not find it there.

What actually justifies an abatement

The IRM states the standard directly, referring to the module — the IRS’s record for one tax period within the account — throughout: when "an adjustment is made to a module to reduce the tax liability to zero" and the underlying "liabilities were not the result of the taxpayer’s action or inaction with respect to the law" — and the IRS abates the liabilities in full — "TC 360 should be abated." That is a narrower standard than simply "the tax went away." It requires both a full tax abatement and that the taxpayer was not at fault for the liability existing in the first place; an audit adjustment the taxpayer legitimately owed and later negotiated down is a different fact pattern from an assessment that should never have posted at all.

This is why a TC 360 can survive a tax abatement that looks, on its face, like it should have taken the fee with it. The tax and the fee answer to different standards, and the fee’s abatement is not automatic just because the balance it was securing hit zero.

The practitioner’s actual next step

Determine why the IRS abated the underlying tax before requesting the fee abatement too. "Not the taxpayer’s fault" is the operative phrase — an IRS processing error, a duplicate assessment, or an assessment later found to have no legal basis all fit; a client simply negotiating a smaller liability through an audit does not.

Request the fee abatement in writing — a letter or Form 843, Claim for Refund and Request for Abatement, referencing IRM 5.12.3.5.6 and the underlying tax abatement — explicitly and separately from the tax abatement request, following the procedure IRM 5.1.15, Abatements, Reconsiderations and Adjustments, sets out (5.12.3.5.6 itself points there rather than naming a specific office). Because the IRM frames this as something the IRS "should" do under the stated conditions rather than something that reverses automatically, silence after a full tax abatement is not evidence the IRS addressed the fee — verify a TC 361 actually posted before telling the client the fee is gone.

Confirm the IRS released the lien itself separately from the fee. Abating the fee does not, by itself, release the underlying Notice of Federal Tax Lien; pull the account transcript and check for that distinct action’s own transcript entry before telling a client the lien is resolved.

What a fee abatement does not resolve

Waiving the fee doesn’t lift the lien — that’s a separate action, on a separate code. A TC 361 removes the charge from the balance due; it does not remove the Notice of Federal Tax Lien from public record, and it does not by itself restore any credit standing damage the filing already caused. Clients frequently expect a fee reversal to undo the lien’s broader consequences. Set that expectation correctly upfront, so the client understands exactly what has and hasn’t changed rather than discovering the gap later.

What TC 361 gets confused with