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  • Writer's pictureMike Bulawan

Penalty Relief for Reasonable Cause

Updated: May 11, 2023

Penalty relief for reasonable cause is a provision provided by the IRS to reduce or eliminate penalties if taxpayers can prove they had a legitimate reason for not filing or paying their taxes on time. This provision aims to relieve taxpayers of undue burden and to promote compliance with tax laws


Understanding Penalty Relief for Reasonable Cause

The IRS imposes various penalties on taxpayers who fail to comply with tax laws, such as late filing or late payment penalties. However, the IRS also provides penalty relief for taxpayers who have reasonable cause for their noncompliance. Reasonable cause refers to situations beyond a taxpayer's control that caused the noncompliance, such as illness, natural disasters, or other unforeseeable circumstances.


If you can establish reasonable cause for your noncompliance, you may qualify to have certain penalties removed or reduced. However, to qualify for penalty relief, you must demonstrate that you acted with reasonable cause and in good faith. This means that you made an effort to comply with the tax laws but encountered unavoidable obstacles.

The IRS considers various factors when determining if you have reasonable cause for your noncompliance, such as:

  • The reason for the noncompliance

  • The length of the delay or the extent of the underpayment

  • The taxpayer's prior compliance history

  • Any steps taken to mitigate the noncompliance

  • The impact of the noncompliance on the taxpayer

It is essential to keep accurate and complete records of your tax activities to establish reasonable cause. The IRS may request documentation to support your claim of reasonable cause, such as medical records, accident reports, or other relevant information.

If you receive a notice from the IRS assessing penalties, you should review the notice carefully and respond promptly. You have the right to request penalty relief and provide an explanation for your noncompliance.

In conclusion, penalty relief for reasonable cause provides relief for taxpayers who encounter unforeseeable circumstances beyond their control. To qualify for penalty relief, you must demonstrate that you acted with reasonable cause and in good faith. If you receive a penalty notice, seek professional advice and respond promptly to avoid further penalties.


Examples of Reasonable Cause for Penalty Relief

The IRS imposes various penalties on taxpayers who fail to comply with tax laws, such as late filing or late payment penalties. However, if you have a reasonable cause for your noncompliance, you may qualify for penalty relief.

Reasonable cause refers to circumstances beyond a taxpayer's control that caused the noncompliance, such as:


Reasonable Cause

Reasonable cause is determined on a case by case basis considering all the facts and circumstances of your situation.

Reasons that qualify for relief due to reasonable cause depend on the type of penalty you owe and the laws in the Internal Revenue Code (IRC) for each penalty.

Reasonable cause doesn't apply to certain penalties such as the estimated tax penalty.

For businesses, the reasons apply to the person with authority to submit the return, deposit, or tax.


Failure to File or Pay Penalties

You may qualify for penalty relief if you demonstrate that you exercised ordinary care and prudence and were nevertheless unable to file your return or pay your taxes on time.

Examples of valid reasons for failing to file or pay on time may include:

  • Fires, natural disasters or civil disturbances

  • Inability to get records

  • Death, serious illness or unavoidable absence of the taxpayer or immediate family

  • System issues that delayed a timely electronic filing or payment

For more information see Policy Statement 3-2.

The following factors don't generally qualify as valid reasons for failure to file or pay a tax on time:

  • Reliance on a tax professional. You're generally responsible for complying with tax law even if someone else handles your taxes. You should know what your tax preparer files and get proof that your return or payment is sent on time.

  • Lack of knowledge. You're responsible for knowing or getting advice on how to file returns and pay or deposit taxes on time. This includes filing requirements, deadlines and amounts you owe.

  • Mistakes and oversights. You're responsible for making sure your tax returns, payments and deposits are correct and on time. In certain cases, reasonable cause may apply to a mistake if additional facts and circumstances show that you tried to comply with tax law.

  • Lack of funds. By itself, lack of funds is not reasonable cause for failing to pay or deposit taxes due. However, you may qualify for relief based on other facts and circumstances that show you used reasonable care and tried to comply with tax law.

Accuracy-Related Penalties

If you received an accuracy-related penalty, you may qualify for penalty relief if you acted with reasonable cause and good faith. To determine whether you qualify, we consider factors including:

  • Efforts you made to report the correct tax

  • The complexity of the tax issue

  • Your education, experience, or knowledge of tax law

  • Steps you took to understand your tax obligation or seek help from a tax advisor

If you relied on a tax advisor, we may consider:

  • Whether you provided all needed information

  • Whether your advisor was competent and experienced with the tax situation

For more information see Treasury Regulation 1.6664-4.

Information Return Penalties

If you can show reasonable cause for failing to file accurate, timely information returns or payee statements, we may consider penalty relief if you prove:

  • You acted in a responsible manner both before and after the failure by having:

    1. Requested extensions of time to file when possible

    2. Tried to prevent a foreseeable failure to file on time

    3. Fixed any issues causing the failure

    4. Corrected the failure as quickly as possible

  • Along with acting in a responsible manner, you must also prove there were significant mitigating factors with respect to the failure or the failure happened due to events beyond your control such as:

  • First time filer of the particular form or statement

  • Good compliance history

  • Actions by the IRS

  • Actions of an agent

  • Actions of another person

  • Access to relevant business records

  • Economic hardships that prevented electronic filing

For more information see Treasury Regulation 301.6724-1.


Apply for a Payment Plan

If you can't pay the full amount of your taxes or penalty on time, pay what you can now and apply for a payment plan. You may reduce future penalties when you set up a payment plan.

How to Request Penalty Relief

We may reduce or remove some penalties over the phone. Call the toll-free number at the top right corner of your notice to request penalty relief for reasonable cause and have supporting documentation.

Have this information when you call:

  • The notice we sent you

  • The penalty you want relieved

  • The reasons you think we should remove it

During the call, if you apply for reasonable cause but we "determined" you qualify for First Time Abate, we'll apply the latter. If you don't qualify for either or we can't approve your relief over the phone, you can request relief in writing with Form 843, Claim for Refund and Request for Abatement.

To reduce or remove an estimated tax penalty, see:

  • Underpayment of Estimated Tax by Individuals Penalty

  • Underpayment of Estimated Tax by Corporations Penalty

Explain the facts and circumstances around your late return, deposit, or payment, including:

  • What happened and when it happened

  • How the situation prevented you from filing your return or paying your tax on time

  • What attempts you made to file or pay your taxes

You should also include supporting documentation such as:

  • Hospital, court records or a doctor's letter to confirm illness or incapacitation, with start and end dates

  • Documentation of natural disasters or other disturbances

  • Copies of relevant written letters and responses

  • Copies of receipts, forms or other documentation

How to Appeal a Penalty Relief Decision

If you received a notice or letter saying we denied your request for penalty relief, see Penalty Appeal Eligibility for next steps.


Interest Relief

We charge interest on penalties. Interest increases the amount you owe until you pay your balance in full.

We'll automatically reduce or remove the related interest if we reduce or remove any of your penalties. Find more information about the interest we charge on penalties at Interest.

To qualify for penalty relief, you must demonstrate that you acted with reasonable cause and in good faith. The IRS considers various factors when determining if you have reasonable cause for your noncompliance, such as the reason for the noncompliance, the length of the delay or underpayment, and the impact on the taxpayer.


If you have a reasonable cause for your noncompliance, you should respond promptly to any penalty notices from the IRS and provide an explanation for your noncompliance. Keep accurate and complete records to support your claim of reasonable cause.


Therefore, penalty relief for reasonable cause provides relief for taxpayers who encounter unforeseeable circumstances beyond their control. If you have a reasonable cause for your noncompliance, seek professional advice, and respond promptly to avoid further penalties.

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