How Reasonable Cause Works
IRS penalties can add thousands of dollars to an already difficult tax problem. In some cases, the penalties become a substantial portion of the total balance owed.
The IRS may remove certain penalties when a taxpayer can establish “reasonable cause.” However, reasonable cause does not simply mean that you had a good excuse. You must generally show that you exercised ordinary care but were still unable to file, pay, or meet another tax obligation on time.
What Does the IRS Mean by Reasonable Cause?
Reasonable cause is based on the specific facts and circumstances of each case. The IRS generally considers whether you exercised what it calls “ordinary business care and prudence” but were nevertheless unable to comply with the tax law.
In practical terms, the IRS wants to understand:
- What happened?
- When did it happen?
- How did it prevent you from filing or paying on time?
- What did you do to try to comply?
- How quickly did you correct the problem once the circumstances changed?
A difficult event alone does not automatically establish reasonable cause. You must connect the event directly to the tax obligation you failed to meet.
Circumstances That May Support Reasonable Cause
Depending on the type of penalty, reasonable cause may include circumstances such as:
- A serious illness or hospitalization
- The death or serious illness of an immediate family member
- A fire, flood, natural disaster, or other major disturbance
- Records that were destroyed or could not be obtained
- An unavoidable absence
- Certain electronic filing or payment system problems
- Other circumstances genuinely beyond your control
This is not an exclusive list. The IRS can consider other situations, but the taxpayer must demonstrate why the circumstances made timely compliance impossible or extremely difficult.
A Serious Illness Is Not Automatically Enough
Suppose a taxpayer was hospitalized shortly before a tax return was due. That may provide a strong basis for reasonable cause.
However, the IRS will also consider what happened afterward. If the taxpayer recovered in June but did not file the return until three years later, the hospitalization may explain the initial delay without explaining the entire period of noncompliance.
The IRS commonly looks at:
- The beginning and ending dates of the illness or other event
- The taxpayer’s ability to manage other personal or business matters
- Whether anyone else could have handled the tax obligation
- The taxpayer’s efforts to comply
- How soon the taxpayer acted after the problem ended
The longer the delay continues after the circumstances have been resolved, the more difficult it may be to establish reasonable cause.
What Usually Does Not Qualify?
The following explanations generally do not establish reasonable cause by themselves:
- You forgot the deadline.
- You did not understand the filing requirement.
- You were too busy.
- You did not have the money to pay.
- You relied on a tax preparer to file the return.
- You made a mistake or oversight.
- You believed an extension to file also extended the time to pay.
The surrounding facts can still matter. For example, a lack of money by itself normally does not establish reasonable cause for failing to pay. However, an unexpected medical emergency, disaster, or other event that suddenly depleted the funds set aside for taxes may deserve additional consideration.
Reliance on a tax professional can also be complicated. Taxpayers are generally responsible for making sure their returns are filed on time. Simply saying that an accountant missed the deadline may not be enough.
Documentation Is Critical
A strong reasonable-cause request should do more than describe what happened. Whenever possible, it should include documents supporting the explanation.
Supporting evidence may include:
- Medical records or a letter from a physician
- Hospital admission and discharge records
- A death certificate
- Insurance claims or disaster reports
- Correspondence showing attempts to obtain missing records
- Bank records
- Proof of attempted electronic filing or payment
- Letters exchanged with a tax professional or financial institution
- A detailed timeline of the relevant events
The documentation should support both the event and the period during which it prevented compliance.
For example, “I was sick for several years” is a general statement. A timeline explaining the diagnosis, periods of hospitalization, limitations caused by the condition, attempts to address the tax problem, and eventual return to compliance provides the IRS with a much clearer basis for making a decision.
Your Compliance History Can Matter
The IRS may review your filing and payment history when considering reasonable cause.
A taxpayer with a long history of filing and paying on time may have a stronger argument that the current failure resulted from an unusual circumstance. A taxpayer with repeated late filings may face more questions about whether the latest incident was truly beyond their control.
A good compliance history does not automatically establish reasonable cause, just as a poor history does not necessarily eliminate every opportunity for relief. It is one part of the overall evaluation.
Reasonable Cause Does Not Apply to Every Penalty
The IRS assesses many different penalties, and reasonable cause is not available for all of them. The standard can also vary depending on the particular penalty involved.
Before submitting a request, you should identify:
- The exact penalty assessed
- The tax period involved
- The reason the IRS assessed it
- Whether reasonable cause applies to that penalty
- Whether another form of relief may be available
Some taxpayers may qualify for First Time Abate or another administrative or statutory form of penalty relief. The best approach depends on the taxpayer’s history and the specific penalties involved.
How Do You Request Penalty Abatement?
Some penalty-relief requests can be made by calling the number shown on the IRS notice. Other cases may require a written request, supporting documentation, or Form 843, Claim for Refund and Request for Abatement.
A written request should clearly:
- Identify the penalty and tax period.
- Explain what happened in chronological order.
- Connect the circumstances to the failure to comply.
- Describe the steps taken to meet the tax obligation.
- Explain when the circumstances changed.
- Show that the taxpayer acted promptly afterward.
- Include relevant supporting documents.
If the IRS denies the request, the taxpayer may have an opportunity to appeal the decision.
Does Penalty Abatement Eliminate the Entire Tax Debt?
No. Removing a penalty does not eliminate the underlying tax.
However, when the IRS removes a penalty, it will generally make a corresponding adjustment to the interest charged on that penalty. Interest charged on the unpaid tax itself will normally remain.
Penalty relief may therefore reduce the balance substantially, but it is often only one part of a broader IRS resolution strategy.
The Bottom Line
Reasonable-cause relief is not based simply on whether something bad happened. The central question is whether you exercised reasonable care but were still unable to comply because of circumstances beyond your control.
A successful request should present a clear timeline, connect the circumstances directly to the tax problem, document the explanation, and show that you acted promptly once you were able.
If IRS penalties represent a significant portion of what you owe, it may be worthwhile to have your situation evaluated before submitting a request. If you have substantial IRS debt or several years of unfiled returns, contact us today to discuss your tax issue and how to get back on track by clicking this link Tax Relief Consultation – Jablonsky Tax Relief or calling (972) 821-1991.
Watch my video to learn more
Jablonsky Tax Relief helps individuals and businesses evaluate IRS penalty-relief options and resolve serious federal tax problems. Contact us to discuss your situation.
This article provides general information and is not intended as legal or tax advice for any particular taxpayer
