The IRS may grant penalty relief for reasonable cause based on all the facts and circumstances of your situation. This broad category of penalty relief can cover many different types of accidents or unexpected circumstances.
Typical Reasonable Causes
The IRS lists the following events as “sound reasons” for failing to meet your tax obligations:
- Fire, casualty, or natural disaster
- Inability to obtain records
- Death, serious illness, or incapacitation of the taxpayers or an immediate family member
If one of these situations caused you to miss a tax payment or filing deadline, you may have a good case for reasonable cause penalty abatement.
Other Potential Reasons
The IRS will consider any other reason that shows you used ordinary business care and prudence to follow the tax laws but were unable to do so. These cases usually involve some events that were out of your control, whether due to someone else’s fault or an accident.
Another important consideration is how you acted once you regained control of the situation. For example, if you were temporarily incapacitated and missed a filing deadline, did you try to fix the problem once you regained capacity? If you couldn’t locate your records, was there a way for you to obtain copies? The IRS will expect you to mitigate the impact of unfortunate events whenever possible.
You can’t simply state that you didn’t have the money to pay a tax bill. However, if the reason you were short on funds qualifies as a reasonable cause, you may have a case for seeking penalty abatement.
Be prepared to back up your case with evidence. This could include medical records, court records, insurance reports, or any other documents that show what happened and how you were impacted by the situation.
The criteria for penalty relief due to reasonable cause can apply to a variety of different factors. If you aren’t sure whether your circumstances may qualify, consult a tax relief attorney to discuss your case.
First-time penalty abatement may be another viable option. You can also consider other tax resolution options if you are unable to get penalty relief or have a remaining unpaid balance.
Ayar Law provides creative solutions to your tax problems, including Offers in Compromise and penalty abatement. Call us at 800.571.7175 for free, no-obligation tax advice from one of our experienced attorneys.