Penalty Relief for Reasonable Cause

Posted by Jeffrey Siegel on December 19, 2017

Reasonable Cause is based on all the facts and circumstances in the taxpayer’s situation.  The IRS will consider any reason which establishes all ordinary business care and prudence was used to meet your Federal tax obligations but were nevertheless unable to do so.

Typical Situations

The IRS will consider any sound reason for failing to file a tax return, make a deposit, or pay tax when due. Sound reasons, if established, include:

  • Fire, casualty, natural disaster or other disturbances
  • Inability to obtain records
  • Death, serious illness, incapacitation or unavoidable absence of the taxpayer or a member of the taxpayer’s immediate family
  • Other reason which establishes that you used all ordinary business care and prudence to meet your Federal tax obligations but were nevertheless unable to do so

Note: A lack of funds, in and of itself, is not reasonable cause for failure to file or pay on time. However, the reasons for the lack of funds may meet reasonable cause criteria for the failure-to-pay penalty.

Facts Establishing Reasonable Cause

Facts needed in order to determine Reasonable Cause:

  • What happened and when did it happen?
  • What facts and circumstances prevented filing the return or paying the tax during the period of time you did not file and/or pay your taxes timely?
  • How did the facts and circumstances affect the taxpayer’s ability to file and/or pay the taxes or perform other day-to-day responsibilities?
  • Once the facts and circumstances changed, what actions did the taxpayer take to file and/or pay your taxes?
  • In the case of a Corporation, Estate or Trust, did the affected person or a member of that individual’s immediate family have sole authority to execute the return or make the deposit or payment?

Documents May Be Needed

Most reasonable cause explanations require that the taxpayer provide documentation to support the claim, such as:

  • Hospital or court records or a letter from a physician to establish illness or incapacitation, with specific start and end dates
  • Documentation of natural disasters or other events that prevented compliance

Is Interest Relief Available?

Interest cannot be abated for reasonable cause. Interest charged on a penalty will be reduced or removed when that penalty is reduced or removed. If an unpaid balance remains on your account, interest will continue to accrue until the account is full paid.


For assistance with offers in compromise, installment agreements, tax delinquencies or relief from levies and tax liens, call your Kansas City tax attorney, Jeffrey R. Siegel, at (913) 735-4829.