Reasonable Cause Penalty Relief

Reasonable cause is a common way to ask the IRS to remove a penalty. It does not require a clean history or a particular dollar amount. It requires a good reason, explained clearly and backed by records. This page explains what the IRS means by reasonable cause, which penalties it can reach, what tends to help and what tends not to, and how to build a request.

What the IRS means by reasonable cause

The IRS Internal Revenue Manual describes reasonable cause as relief that is generally granted when the taxpayer used ordinary business care and prudence but still could not comply. Ordinary care means the degree of care a reasonably prudent person would exercise. Relief depends on all the facts and circumstances. For a business, the reasons apply to the person with the authority to file the return, make the deposit or pay the tax.

The IRS considers relief in a set order: correction of an IRS error, statutory and regulatory exceptions, administrative waivers such as first-time penalty abatement, and then reasonable cause. If a first-time waiver fits, the IRS may apply it first and tell you the removal was based on your compliance history.

What is generally accepted and what is not

For failure-to-file and failure-to-pay penalties, the IRS lists these examples of valid reasons:

• fire, natural disaster or civil disturbance
• inability to obtain records
• death, serious illness or unavoidable absence of you or an immediate family member
• system issues that delayed a timely electronic filing or payment

The IRS says these are generally not enough on their own:

• relying on a tax professional
• not knowing about a filing or payment obligation
• mistakes and oversights, although reasonable cause may apply with additional facts
• a lack of funds, which may qualify when other facts show you used ordinary care and prudence

What the IRS looks at for other penalties

Accuracy-related penalties. The IRS looks at your efforts to report the correct tax, the complexity of the issue, your education, experience and tax knowledge, and the steps you took to understand your obligation or get advice. If you relied on an adviser, it considers whether you gave all the needed information and whether the adviser was competent and experienced with your situation. Treasury Regulation 1.6664-4 is the governing authority. See accuracy-related penalty.

Information return penalties. You must show you acted responsibly before and after the failure, such as asking for extensions, preventing a foreseeable failure, fixing the cause and correcting quickly. You must also show significant mitigating factors or events beyond your control, such as first-time filing of the form, a good compliance history, actions by the IRS or another person, lack of access to business records, or economic hardship that prevented electronic filing. See information return penalties.

International penalties. Some may be removed for reasonable cause, but not all, and the standard has its own limits. For example, the instructions for Forms 8938 and 3520 say foreign laws that penalize disclosure do not count. See the foreign reporting penalties overview.

What to include in your request

State the facts in order, and tie them to the deadline you missed.

1. What happened and when. Dates matter more than adjectives.
2. How it kept you from filing or paying on time. Explain the connection.
3. What you did to try to comply. Phone calls, messages, attempts to get records, partial payments.
4. What you did once the obstacle ended. The IRS looks at how quickly you fixed the problem.

Attach documents rather than just describing them. The IRS gives examples: hospital or court records, a doctor's letter with start and end dates, disaster documentation, copies of letters and responses, receipts, and forms. A signed letter from a third party, such as a physician, helps if it states dates and how the event affected your ability to act.

Example (hypothetical). A self-employed taxpayer was hospitalized from March 20 to May 10 and was then recovering at home. The return was due April 15 and was filed June 5. The request lists the dates, attaches the hospital discharge summary and a doctor's note covering the recovery period, and explains that the return was filed within about four weeks of discharge. That is a clear link between the event and the late filing. The IRS decides, and the outcome is not certain, but the request gives it what it needs.

How to ask

You can often ask by calling the number on your notice. Have the notice, the penalty, your reasons and the supporting documents ready. If the request cannot be approved by phone, use Form 843, Claim for Refund and Request for Abatement, or a signed written request. Step-by-step instructions are on our page about how to request penalty abatement.

If the IRS says no

The denial letter should state your appeal rights. The IRS says you generally have 30 days from the date of the rejection letter to file a request for an appeal, and the letter may state a different deadline. To qualify, the penalty must be a failure-to-file or failure-to-pay penalty on an individual or business account, you must have sent a written request to remove it, and it must have been denied with a letter that states appeal rights. Include proof of timely filing or payment if you have it, or a detailed explanation of the facts. See IRS Appeals and the Taxpayer Advocate Service for other help.

How we can help

We can listen to your story, identify which facts matter to the IRS, gather documents and write a request that is organized, accurate and complete. We also check for first-time relief and for IRS errors before we rely on reasonable cause. We cannot promise the IRS will agree, because it makes each decision on the facts. See our IRS representation service or contact us.

Frequently asked questions

General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.