What Is Reasonable Cause According to the IRS?

The Internal Revenue Service (IRS) assesses penalties for failing to file a tax return on time or failing to pay the correct amount of tax. These additions to a tax liability can be substantial, compounding an already difficult financial situation. The tax code provides pathways for taxpayers to have these penalties removed, or abated. One of the most common avenues for this relief is known as “reasonable cause.”

Defining Reasonable Cause

Reasonable cause is not a blanket excuse for failing to meet tax obligations; instead, it is a specific standard defined by the IRS. The core of this standard is whether a taxpayer exercised “ordinary business care and prudence” in managing their tax affairs but was nevertheless unable to comply. The determination is made on a case-by-case basis, considering all the facts and circumstances of the specific situation.

This standard can be applied to several of the most common penalties. These include the Failure to File penalty, which applies when a return is not submitted by its due date, and the Failure to Pay penalty, assessed when taxes are not paid by the deadline. It can also apply to the Failure to Deposit penalty for businesses and to certain accuracy-related penalties. However, reasonable cause does not apply to all penalties, such as the penalty for underpayment of estimated tax.

Forgetting the tax deadline or being unaware of a specific tax law requirement are not accepted as valid reasons. Similarly, simply lacking the funds to pay the tax is not, by itself, considered reasonable cause, as a prudent person is expected to plan for their tax obligations.

Circumstances That May Qualify as Reasonable Cause

The IRS recognizes several specific life events and situations that can prevent even the most prudent person from meeting their tax duties. Each situation is evaluated based on its direct impact on the taxpayer’s ability to comply with tax laws during a specific period.

Death, Serious Illness, or Unavoidable Absence

A significant personal or family medical crisis is a frequently cited reason for penalty relief. This includes the death or serious illness of the taxpayer or a member of their immediate family. An unavoidable absence, such as being called away for a family emergency, can also qualify if it directly prevented the taxpayer from filing or paying on time.

Fire, Casualty, Natural Disaster, or Other Disturbance

Events that physically disrupt a taxpayer’s life or destroy their records are also considered valid grounds for a claim. This category includes fires, floods, hurricanes, tornadoes, and other natural disasters that may have damaged a taxpayer’s home, place of business, or financial records. A civil disturbance, such as a riot, that prevents access to records or a tax preparer’s office could also be a qualifying event.

Inability to Obtain Records

Sometimes, a taxpayer’s failure to comply stems from an inability to get the necessary documents. This might occur if a third party, such as an employer who failed to provide a Form W-2 or a partnership that did not issue a Schedule K-1, holds the required information and does not make it available in a timely manner. The taxpayer must show they made repeated and timely efforts to obtain these records but were unsuccessful due to factors outside their control.

Erroneous Advice

Relying on incorrect advice can also be a basis for reasonable cause, but the standards are specific. If a taxpayer receives erroneous advice from the IRS itself, for example, through a telephone call or written correspondence, this can be a strong argument for relief. Relying on a competent tax advisor, such as a CPA or enrolled agent, who provides incorrect guidance can also qualify. However, the taxpayer must demonstrate that they provided the advisor with all the necessary and accurate information and that the resulting error was not due to their own oversight.

Information and Documentation to Support Your Claim

A successful reasonable cause claim depends on the quality of the supporting evidence. The burden of proof is on the taxpayer to provide a clear, factual narrative and corroborate it with official documentation that substantiates the circumstances.

The specific documents needed will vary based on the reason for the claim. For a claim based on serious illness, you should obtain copies of hospital records or a letter from a physician detailing the nature and dates of the illness. If a natural disaster is the cause, a copy of a police or fire department report or insurance claim documents can serve as proof. For an inability to obtain records, you should keep copies of letters, emails, or logs of phone calls showing your attempts to get the necessary information from a third party.

The primary vehicle for formally requesting penalty relief for reasonable cause is IRS Form 843, Claim for Refund and Request for Abatement. When completing the form, you must provide basic identifying information, specify the tax period in question, and identify the penalty being contested. You must also clearly and concisely explain the facts and circumstances in the explanation section, referencing the supporting documents you have gathered.

How to Request Penalty Relief

Note that some taxpayers may qualify for a simpler form of relief called a First-Time Abatement (FTA). The IRS may grant this relief from failure-to-file, failure-to-pay, and failure-to-deposit penalties if you have a clean compliance history for the past three years. The IRS may automatically apply this abatement for a qualifying taxpayer, even when the request is made on the basis of reasonable cause.

If you do not qualify for FTA, you can request relief for reasonable cause. After completing the form and gathering documentation, mail it to the IRS. The correct mailing address depends on your situation; if you are responding to an IRS notice, send the form to the address shown on that notice. Otherwise, you should mail it to the service center where you would file your current tax return. It is highly recommended to send the package via certified mail with a return receipt requested.

Once the IRS receives your request, it will begin the review process, though processing times can vary significantly, often taking several months. After a decision is made, you will receive another notice either approving the abatement or denying it. If your request is denied, the notice will explain the reasons for the denial and provide information on your right to appeal the decision.