IRS Penalty Abatement - Reasonable Cause - John R. Dundon II, Enrolled Agent
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IRS Penalty Abatement – Reasonable Cause

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IRS Penalty Abatement – Reasonable Cause

Quite often I get asked to seek penalty abatement relief for an IRS delinquency or set of delinquencies as part of helping taxpayers chart a path towards compliance. Today while perusing the IRS web site I stumbled across some text worth sharing that sheds some light on when it is reasonable to request relief from IRS penalties.

According to Chapter 20 of the Internal Revenue Manual (IRM), whether a failure to file or failure to pay is due to reasonable cause is based on a consideration of the facts and circumstances.  Reasonable cause relief is generally granted by the IRS when you demonstrate that you exercised ordinary business care and prudence in meeting your tax obligations but nevertheless failed to meet them.  In determining whether you exercised ordinary business care and prudence, the IRS will consider all available information, including:

  • The reasons given for not meeting your tax obligations;
  • Your compliance history;
  • The length of time between your failure to meet your tax obligations and your subsequent compliance; and
  • Circumstances beyond your control.

Reasonable cause may be established if you show that you were not aware of specific obligations to file returns or pay taxes, depending on the facts and circumstances.

Among the facts and circumstances that will be considered are:

  • Your education;
  • Whether you have previously been subject to the tax;
  • Whether you have been penalized before;
  • Whether there were recent changes in the tax forms or law that you could not reasonably be expected to know; and
  • The level of complexity of a tax or compliance issue.

You may have reasonable cause for noncompliance due to ignorance of the law if a reasonable and good faith effort was made to comply with the law or you were unaware of the requirement and could not reasonably be expected to know of the requirement.”

For more information on penalties IRS Notice 746 is worth checking out. What really seems to get a lot of tax payers is the imposition of the accuracy related penalty as well as the Trust Fund Recovery Penalty, both have the potential to be life time game changers.