Reasonable Cause for Penalty Abatement
The IRS takes penalty abatement requests on a case by case basis. If you are not applying for first-time penalty abatement, you will generally good reason(s) why you paid or filed late. The most common reason for penalty abatement is reasonable cause.
To qualify for reasonable cause, you basically have to convince the IRS that you had a legitimate reason for not paying or filing on time. You also have to prove that you were exercising ordinary care and prudence.
What Is Reasonable Cause?
Reasonable cause is any legitimate excuse for not paying or filing on time. The issue must be out of your control. Also, you must prove to the IRS that you tried to file but that it was basically impossible.
Here are some common examples of reasonable cause.
- Death of a family member or someone very close to you
- Unavoidable absence such as being in rehab or jail
- Held hostage in another country
- Destruction of your records due to fires, floods, or other casualties
- Could not make payment or deposit due to civil disturbance such as a mail strike or a riot
- Unable to determine amount of tax for reasons beyond your control
- Received incorrect advice from a tax professional who is considered competent and trustworthy
Additional Information to Prove Reasonable Cause
If your situation is not listed above, the IRS will look deeper into the incident. Here are some of the questions IRS agents may ask. These questions help determine if you should receive penalty abatement.
- What were the circumstances of the situation that caused your problem? Furthermore, why did these circumstances keep you from complying with tax laws?
- Do you have a history of paying late? If you have a history of being delinquent, your chances of abatement go down dramatically.
- How were other financial problems handling during this time? The IRS wants to know if the tax bill was the only one ignored or if other bills were ignored as well.
- Do the dates of the issue match the time of the tax due date or filing deadlines?
- Was the situation anticipated?
- Were the circumstances outside of your control? Did you have any control over the situation?
- How strong is your support? Do you have third party documents? Doctors’ notices? Hospital bills? News of abduction?
The requirements for penalty abatement are more open than almost all other types of tax debt settlements. The IRS puts an actual face on your case instead of a computer, and penalty abatement can be much easier to attain than other types of settlements.
As a general rule of thumb, the most important issue is whether or not the situation was out of your control. For best results, you should work with a tax relief professional who specializes in helping people with penalty abatement.