Whether or not the $416 that the IRS says is the minimum payment it will accept is enough to fully pay the debt (plus the interest and penalty) does not stop you from paying that amount, which you say that you can do.
The IRS can accept an installment agreement that will not fully pay all the interest and penalty before the time that is allowed for collection runs out. This is referred to as a Partial Payment Installment Agreement (PPIA).
See Legislation Allows Partial Payment Option at irs.gov for more information, including:
Taxpayers who request a PPIA must provide complete and accurate financial information that will be reviewed and verified. Taxpayers will also be required to address equity in assets that can be utilized to reduce or fully pay the amount of the outstanding liability.
In addition, taxpayers granted PPIAs will be subject to a subsequent financial review every two years. As a result of this review, the amount of the installment payments could increase or the agreement could be terminated, if the taxpayer's financial condition improves.
The PPIA payment option will provide an appropriate payment option for many taxpayers. Those who qualify for the PPIA option will be strongly encouraged to make their payments via the direct debit option.
So, you can accept paying the $416 now; but will have to supply financial information in the future and the minimum amount may change based on your situation at that time.
Interest can not be waived unless the IRS has made some error in figuring the interest. Penalty can sometimes be waived; but is usually based on reasonable cause as to why the tax was not paid when due. (Not having the money to pay the IRS; but paying other bills is not reasonable cause.) Whether a request for waiver of penalty is still available depends on the history of your case. It is worth your time and effort to sit down and discuss your specific case with a tax practitioner experienced in penalty abatement (such as an Enrolled Agent ) to explore if a request still can be submitted (or if it is worthwhile to try to get appeals reconsideration in your case). Many tax professionals will disucss your situation to see if you are a potential client at little or no cost to you.
I hope this helps you to understand that a Partial Payment Installment Agreement is available.