IRS Penalty Forgiveness Using Reasonable Cause

The IRS can waive penalties it assessed against you or your business if there was “reasonable cause” for your actions.

The IRS permits reasonable cause penalty relief for penalties arising in three broad categories:

1.     Filing of returns

2.     Payment of tax

3.     Accuracy of information

Contrary to what you might think, the term “reasonable cause” is a term of art at the IRS. This seemingly simple phrase has a precise and detailed definition as it relates to penalty abatement.

Here are three instances where you might qualify for reasonable cause relief:

1. Your or an immediate family member’s death or serious illness, or your unavoidable absence

2. Inability to obtain necessary records to comply with your tax obligation

3. Destruction or disruption caused by fire, casualty, natural disaster, or other disturbance

Here are five instances where you likely do not qualify for reasonable cause penalty relief:

1. You made a mistake.

2. You forgot.

3. You relied on another party to comply on your behalf.

4. You don’t have the money.

5. You are ignorant of the tax law.