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What is Reasonable Cause for an IRS Abatement?

A penalty abatement is when the IRS removes penalties from a person’s tax obligation. The penalties can include failure to file, failure to pay, and failure to deposit. The IRS also has the ability to remove interest from those penalties. The IRS can grant penalty abatement if any of the following are true:

  • You didn’t have to previously file a return, or you have no penalties for the 3 tax years prior to the year the penalty was received.

  • You filed all required returns or filed an extension.

  • You have paid, or arranged to pay any tax due.



Reasonable Cause

One reason a taxpayer may have for not paying or filing on time is reasonable cause. In order for this to be taken into consideration, the issue must be completely out of the taxpayer’s control. Proof must be provided to the IRS that an attempt to file happened, but ended up becoming impossible. Reasonable cause can include:

· Death or serious illness of a family member

· Unavoidable absence due to rehab or prison

· Divorce or other traumatic family experience

· Records were destroyed as a result of a fire, flood, or other casualties

· Payment cannot be made due to civil disturbance such as a mail strike or riot

· Received incorrect advice from a tax professional

The IRS will look at four factors when deciding whether the reasonable cause is enough to abate a tax penalty.

1. The taxpayer should have a compelling reason seeking a penalty abatement. Everything should sync in line with dates and circumstances on which the penalties were based.

2. The IRS will look at the compliance history of the taxpayer. The IRS wants to make sure that there was no suspicious behavior in the past.

3. The IRS will look at the length of time it took taxpayers to become compliant and determine whether it was reasonable based on the circumstances.

4. The circumstances MUST be completely beyond the taxpayer’s control.


If death, serious illness, or unavoidable absence were reasons for abatement, the IRS would have more leniency in helping out during this situation. This situation would apply to both individual taxpayers (or their family members) and corporate taxpayers when the person who is solely responsible for a company’s tax compliance obligations is absent.

If a corporation was involved, the IRS will look to see if ordinary business was still taking place. Documentation must be provided to the IRS to show why there was a lack of compliance. Proof of dates and details related to:

  • How severe the condition is

  • The relationship of the taxpayer to the individual afflicted with the condition

  • Essential details the IRS would consider relevant

Penalty Abatement Considerations

Many people do not qualify for IRS First Time Penalty Abatement. Before considering applying for IRS First Time Penalty Abatement, the taxpayer should consider the compliance history.

Clean Compliance History

It is important to have a solid compliance history with the IRS. If you have incurred any penalties, you will be disqualified from the abatement. If you had to receive reasonable cause relief in the past, you can still be eligible for abatement.

Filing Compliance

All required forms need to have been filed in order to be considered for an abatement. If you have an outstanding debt due to previous failures to file with the IRS, your ability to qualify for an abatement will diminish.

Payment Compliance

You must have paid, have an installment agreement, or arranged to pay all due taxes with the IRS to meet the requirements.


NEED TAX RELIEF?

Have you received a notice from the IRS, or if you have years of unfiled tax returns, reach out to our office. We’ll schedule a no-obligation confidential consultation to explain your options to permanently resolve your tax problem. Click here to schedule your no cost consultation. We charge a flat fee for our services and will stop the IRS collection efforts.


Jace Kentner

Tax Attorney

573-708-7870

jace@kentnerlaw.com

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