What Is Reasonable Cause for IRS Penalty Relief?

The Internal Revenue Service (IRS) assesses penalties for issues like failing to file a return on time or failing to pay the correct amount of tax. These penalties can be waived if a taxpayer demonstrates they had a valid reason for non-compliance. This relief is not automatic and requires a specific request that meets the IRS standard for “reasonable cause.”

Understanding the Reasonable Cause Standard

The IRS determines reasonable cause by evaluating the facts and circumstances of each case. The standard is whether you exercised “ordinary business care and prudence” in managing your tax obligations but were still unable to meet them. This means showing you took the same degree of care that a prudent person would under similar circumstances.

Because the evaluation is a case-by-case analysis, there is no single accepted excuse. The agency considers the complexity of the tax issue, your education, and what steps you took to meet your obligations. The IRS also reviews your compliance history to see if the failure is an isolated incident or part of a pattern.

Being unaware of a specific tax law is not considered a valid reason for failing to comply. The responsibility to know and meet tax obligations rests with the taxpayer. A reasonable cause argument must demonstrate that despite your responsible efforts, circumstances beyond your control prevented you from complying.

This standard applies to common penalties for filing late, paying late, and accuracy-related issues. To grant relief, the IRS must be convinced that your failure was not due to willful neglect, which is defined as a “conscious, intentional failure or reckless indifference.” You must show that you made an honest and reasonable attempt to comply with the law.

Circumstances That May Establish Reasonable Cause

The IRS recognizes several situations that can serve as the basis for a reasonable cause claim. Each is evaluated based on how directly it prevented you from meeting your tax obligations.

• Death, Serious Illness, or Unavoidable Absence: A significant personal event can be a valid reason. This includes the death or serious illness of the taxpayer or an immediate family member, and you must demonstrate that the event was so disruptive it made it impossible to manage your financial affairs in a timely manner. An unavoidable absence, such as for an emergency, may also qualify if it directly prevented you from filing or paying.
• Fire, Casualty, or Natural Disaster: Events that destroy your property or records can establish reasonable cause. This includes fires, floods, hurricanes, or other natural disasters that impact your ability to compile tax information, and civil disturbances can also fall into this category. The loss of records due to theft may also be a valid reason if you can prove the event occurred and you tried to reconstruct the documents.
• Inability to Obtain Records: This may apply if a third party, like an employer, fails to provide a W-2 or 1099 form. You must show that you made repeated, timely efforts to obtain these records but were unsuccessful. Simply waiting until the last minute without making a genuine attempt to get the information will not suffice.
• Erroneous Advice: Relying on incorrect written advice from the IRS itself can be a basis for relief. Relying on a tax professional can also be a defense, but you must prove the advisor had the necessary expertise, you provided them with all complete and accurate information, and you relied on their advice in good faith. You cannot delegate your ultimate responsibility for the return.

Reasons That Do Not Qualify

Certain excuses are rarely accepted. A lack of funds to pay the tax owed is not a defense for failing to file the return, though the reasons for the lack of funds might separately constitute reasonable cause for a failure-to-pay penalty. Forgetting the deadline or making a simple mistake is also not considered reasonable cause, as taxpayers are expected to have systems in place to meet their obligations.

Information and Documentation to Support Your Claim

Your explanation of events must be supported by documentation that proves your claim. The specific documents needed will vary based on your reason for reasonable cause, but they should create a clear and verifiable timeline.

For a death or serious illness, collect death certificates, letters from physicians, or hospital records. For a natural disaster, provide insurance claims, police reports, or photos of the damage. If you were unable to obtain records, include copies of your requests for the information. If relying on erroneous advice, provide a statement from the advisor explaining the circumstances and evidence of their credentials.

To request relief in writing, use IRS Form 843, Claim for Refund and Request for Abatement. This form asks for your personal information, the tax period in question, the type of penalty, and the amount you want abated. You will need to enter the Internal Revenue Code section for your penalty, which is found on the IRS notice you received.

Line 7 of the form is where you provide your detailed explanation. In this section, you will present your case, explaining how the events you describe directly prevented you from complying with your tax duties. You should reference the supporting documents you have gathered.

Requesting Penalty Abatement

There are two primary paths for penalty relief: arguing for reasonable cause or seeking a First-Time Abatement (FTA). FTA is an administrative waiver for taxpayers with a clean compliance history. To qualify, you must have filed all required returns, paid or arranged to pay any tax due, and have no similar penalties in the preceding three years. Unlike a reasonable cause defense, FTA does not require a specific justification for the error and is granted based on your compliance history. It applies to failure-to-file, failure-to-pay, and failure-to-deposit penalties.

For an FTA request, you may be able to obtain relief by calling the toll-free number on your IRS notice. An IRS agent might approve your request over the phone. If your request is denied or is more complex, such as one based on reasonable cause, you must submit it in writing.

A written request involves mailing the signed Form 843 with copies of your supporting documents to the address in the form’s instructions. You should send copies, not originals. A separate form is required for each tax period, and if the penalty is for a joint return, both spouses must sign.

After you mail your request, the IRS will review your case, which can take several months. You will receive a letter informing you of their decision. The correspondence will state that your request has been accepted, or it will be a denial letter explaining the reasons for the decision. If your request is denied, the letter will provide information on your right to appeal to the IRS Independent Office of Appeals, which must be initiated within 30 days.