Internal Revenue Code Section 6651 Explained

Internal Revenue Code Section 6651 provides the legal basis for the Internal Revenue Service (IRS) to assess penalties against taxpayers. These penalties apply when a taxpayer fails to file a required tax return by its due date or fails to pay the tax owed in a timely manner. The provisions of Section 6651 address both the failure to file and the failure to pay, treating them as distinct compliance failures.

Understanding the Penalties

The penalties under Internal Revenue Code (IRC) Section 6651 are calculated based on the amount of unpaid tax and the length of the delay. The failure-to-file penalty is assessed at a rate of 5% of the unpaid taxes for each month or part of a month that a tax return is late. This penalty is capped at 25% of the outstanding tax liability.

A separate penalty exists for failing to pay the tax due by the deadline. The failure-to-pay penalty is 0.5% of the unpaid taxes for each month or part of a month the tax remains unpaid, also capped at 25%. These two penalties can be applied simultaneously.

When both the failure-to-file and failure-to-pay penalties are applicable in the same month, the total penalty is limited to 5% per month. The failure-to-file component is reduced to 4.5%, and the failure-to-pay penalty remains at 0.5%.

For returns filed more than 60 days after the due date, including extensions, a minimum penalty applies. For tax returns required to be filed in 2025, this minimum penalty is the lesser of $510 or 100% of the tax owed. This provision highlights the importance of filing a return, even if the full tax liability cannot be paid at that time.

Establishing Reasonable Cause

A taxpayer may have penalties removed if they can demonstrate “reasonable cause” for their failure to file or pay on time. The standard for reasonable cause is the exercise of ordinary business care and prudence, meaning a taxpayer must show they were unable to comply due to circumstances beyond their control.

The IRS considers various situations as potential grounds for establishing reasonable cause. These include the death or serious illness of the taxpayer or an immediate family member, an unavoidable absence of the taxpayer on the filing due date, or the destruction of a taxpayer’s home, business, or records by a fire or natural disaster.

Conversely, certain explanations are not sufficient to establish reasonable cause. A lack of funds to pay the tax liability is a common but rejected reason, as the inability to pay does not relieve the taxpayer of the duty to file. Forgetting the tax deadline or misinterpreting the law are also not considered valid excuses.

Relying on a tax professional is not an absolute defense; the taxpayer must still demonstrate they provided the agent with all necessary information. The determination of reasonable cause is based on a review of the taxpayer’s specific facts, timeline of events, and whether the taxpayer acted in good faith.

Information and Documentation for Abatement

To build a case for penalty abatement based on reasonable cause, a taxpayer must provide a detailed narrative of the facts. This should be a clear timeline explaining how the circumstances prevented the timely filing or payment of tax. Supporting documentation is necessary to substantiate the claims.

This can include:

• Hospital records or doctor’s statements for a serious illness.
• A copy of a death certificate for a death in the family.
• Police reports, fire department reports, or insurance claims if records were destroyed.

Proof of a good compliance history can strengthen a request for penalty relief. Showing consistent on-time filing and payment in previous years demonstrates that the current failure was an isolated incident. It is also important to document the steps taken to comply once the incapacitating circumstances were resolved, such as filing the return or making payment arrangements promptly.

How to Request Penalty Relief

A taxpayer can request penalty relief by attaching a detailed statement explaining the reasonable cause to the late-filed tax return. Another method is to file Form 843, Claim for Refund and Request for Abatement, with a thorough explanation and all supporting documents attached. In some cases, a taxpayer may request penalty relief by calling the toll-free number on their IRS notice.

For taxpayers with a clean compliance history, an administrative waiver known as First-Time Abate (FTA) may be available. To qualify, the taxpayer must have filed all required returns, have no penalties for the preceding three years, and have paid or arranged to pay any tax due.

FTA can often be requested over the phone and does not require the extensive documentation needed for a reasonable cause argument. After a request is submitted, the IRS will review the case and issue a determination letter. If the IRS denies the request, the taxpayer has the right to appeal the decision through the IRS Independent Office of Appeals.