U.S. tax law is notoriously difficult to understand and to many is needlessly complicated. Nevertheless, the IRS expects taxpayers to know when and how to pay their taxes and file all tax returns on time.
The IRS will penalize taxpayers who fail to timely file returns or make payments. But what if you believe you have a good reason for not filing or paying your taxes on time? Is that enough to get the penalty against you dropped?
Failure to file/pay on time and reasonable cause
If you fail to file your taxes on time or pay what you owe on time, you could be assessed a penalty by the IRS. If this happens to you, you can send the IRS a request in writing to remove the penalty, which is referred to as penalty abatement.
If the IRS will not remove the penalty, you have the right to file an appeal. If you prevail, your penalty may be removed based on reasonable cause. This means you exercised ordinary care and prudence to file and/or pay your taxes on time, but you could not do so due to circumstances beyond your control.
Some circumstances that might be beyond your control include:
- Death or serious illness
- Fire or natural disaster
- Electronic filing or payment issues on IRS systems
None of these factors on their own guarantee you will be granted reasonable cause relief. Reasonable cause is examined on an individual basis, given your unique facts and circumstances.
In addition, certain factors are not considered when determining reasonable cause for failure to file or failure to pay penalties. Poor reliance on a tax professional, lack of knowledge, mistakes made and oversights are not factors. This is because the IRS considers the taxpayer ultimately responsible for understanding and complying with federal tax law.
So, you might have the penalties levied against you lifted for reasonable cause, but it is not a guarantee. Moreover, even if the penalty is removed, you still have to file your taxes and pay what you originally owed.