Justice Manual § 6-6.500

The amount in controversy in a case includes the underpayment of interest under 26 U.S.C. § 6601. Accordingly, interest should not be conceded as part of a settlement unless the Government: 1) faces litigating hazards that affect the Government’s ability to establish its claim in full or 2) should concede interest in light of the taxpayer’s inability to pay. In a settlement based on collectability, the taxpayer pays less than the total amount of the Government's claims, with interest, because the taxpayer is unable to pay the full amount. Ordinarily, a settlement based on collectability should provide that the taxpayer shall not deduct any part of the payment for federal income tax purposes. An exception to this rule may be appropriate only if the United States Attorney anticipates that the taxpayer will actually pay the full amount of the tax and penalties, as well as at least some of the interest, or the tax in question is deductible by the taxpayer.