Penalty Relief Due to Reasonable Cause: What is it and do you qualify?

Penalty abatement or penalty relief requests are taken by the IRS on a case to case basis. If this is not your first time applying for penalty abatement, the IRS will generally ask you to provide a good reason(s) why you paid or filed late. However, the most common reason for penalty abatement is reasonable cause.

In order to qualify for reasonable cause, you basically have to provide enough proof to the IRS and have a legitimate reason for your failure to pay or file on time. Along with these, you also have to prove that you did exercise ordinary care and prudence.

Breaking Down Reasonable Cause

Any legitimate excuse for your failure to pay or file on time is called Reasonable Cause. You have to prove to the IRS that the issue was out of your control and you try to file but it was basically impossible.

To help you further understand, here are some of the most common reasonable cause people use:

• A loved one or a family member died
• Getting into rehab or jail which is something you cannot avoid and causes your absence
• Held hostage in another country
• Natural calamities occurred such as fires and floods that destroyed all your important records
• A mail strike or a riot occurred that wouldn’t allow you to make payment or deposit because of the civil disturbance it causes
• Amount of tax cannot be determined due to reasons that are out of your control
• A tax professional known to be competent and trustworthy gave you incorrect tax advice

What happens if your situation is not listed above?

If you cannot find your situation among the reasonable causes listed above, the IRS will look closely at your situation. Agents of the agency will last your questions to help determine whether you qualify for receiving penalty abatement or not.

You may encounter these type of questions from the IRS:

• What were the circumstances of the situation that caused your problem to arise? Additionally, how did these circumstances caused you to fail from complying with tax regulations?
• Have you paid late before? You may not qualify for abatement or your chance to qualify might be very small if you have a history of being delinquent.
• How did you handle other financial problems? The IRS wants to find if failure to pay or paying your taxes late was the only one you’re having issues with or if other bills weren’t taken cared of properly as well.
• Are the tax due date or filing deadlines matched with the date of the problem you had?
• Was the situation expected?
• Were the circumstances out of your control or did you have any control over them?
• Are your supporting documents strong enough to prove your situation? Any Doctor’s notices? Hospital bills? News of abduction?

Among all other types of tax debt settlements, the requirements to qualify for penalty abatement are more open because the IRS really takes care of your case face to face instead of letting the computer do it. Penalty relief is also easier to attain compared to other types of settlements.

Generally, what the IRS really cares about is whether or not the situation was out of your control. If you’re worried or not sure what to do in order to qualify for a penalty relief, it’s best to consult a tax professional who is knowledgeable and experienced in helping taxpayers deal with penalty abatement.

How to apply for Penalty Abatement?

You can request and file for Penalty Abatement verbally, in writing, or by using Form 843. However, it doesn’t matter which method you choose, you still need to explain the reasons why you failed to pay the taxes owed or what made you pay late.

If you decide to request penalty abatement by writing a letter to the IRS, it must contain your explanation as to what makes you deserving for the abatement. You can ask a tax professional for a sample petition letter so you have an idea of what the IRS may expect from you. Although it is best to call the IRS for a more effective and clear discussion.

You can also use Form 843 to claim a refund or ask for an abatement. There are instructions and details you can find online or from a tax professional. The Form is used to abate or erase certain taxes, penalties, fees, and interest. However, interest is only erased if the IRS causes the error or delay in most cases.