Reasonable Cause Penalty Relief

IRS Definition:

Reasonable cause is based on all the facts and circumstances in your situation. The IRS will consider any reason which establishes that you used all ordinary business care and prudence to meet your federal tax obligations but were nevertheless unable to do so.

The IRS will consider any sound reason for failing to file a tax return, make a deposit, or pay tax when due. Sound reasons, if established, include:

  • Fire, casualty, natural disaster or other disturbances
  • Inability to obtain records
  • Death, serious illness, incapacitation or unavoidable absence of the taxpayer or a member of the taxpayer’s immediate family
  • Other reason which establishes that you used all ordinary business care and prudence to meet your Federal tax obligations but were nevertheless unable to do so

Note: A lack of funds, in and of itself, is not reasonable cause for failure to file or pay on time. However, the reasons for the lack of funds may meet reasonable cause criteria for the failure-to-pay penalty.

More from H&R Block

The three most common penalties (other than the estimated tax penalty) are the failure to file, failure to pay, and accuracy penalties. The IRS can abate these three penalties for reasonable cause.

There are two components to reasonable cause penalty relief:

  1. You acted with ordinary business care and prudence.
  2. Circumstances, beyond your control, made it so that you couldn’t comply.

The IRS will ask the following:

  • Was the reason you didn’t file or pay outside of your control and not due to willful neglect?
  • Did you make an honest and reasonable attempt to file an accurate return?

The IRS will look at these factors:

  • Death, serious illness, or unavoidable absence
  • Fire, casualty, natural disaster, or other disturbance
  • Inability to obtain records
  • Mistake was made
  • Erroneous advice or reliance
  • Ignorance of the law
  • Undue hardship
  • Advice from the IRS
  • Advice from a tax advisor
  • Official disaster area

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