Reasonable Cause
Reasonable cause is a defense against IRS penalties where the taxpayer demonstrates they exercised ordinary business care and prudence but were still unable to comply with their tax obligations.
Exam Tip
Reasonable cause = ordinary business care and prudence. Taxpayer bears burden of proof. Reliance on CPA/EA qualifies IF taxpayer gave complete/accurate info.
What is Reasonable Cause?
Reasonable cause is the primary defense for abating IRS penalties. The taxpayer must show they acted responsibly but circumstances prevented compliance.
Factors IRS Considers
| Factor | Examples |
|---|---|
| Death/serious illness | Taxpayer or immediate family |
| Unavoidable absence | Incarceration, natural disaster |
| Fire/casualty/disaster | Records destroyed |
| Unable to obtain records | Despite reasonable efforts |
| Reliance on professional | CPA/EA gave incorrect advice |
| Ignorance of law | First-time, complex provision |
Reasonable Cause vs. FTA
| Feature | Reasonable Cause | First-Time Abatement |
|---|---|---|
| Basis | Facts and circumstances | Administrative policy |
| Clean history needed | No | Yes (3 years) |
| Documentation | Required | Minimal |
| Penalties covered | All penalties | FTF, FTP, FTD only |
How to Request
File Form 843 (Claim for Refund) or call IRS, or include explanation with return/response to penalty notice.
Exam Alert
Reasonable cause = ordinary business care and prudence. The taxpayer bears the burden of proof. Reliance on a tax professional can qualify, but the taxpayer must provide complete and accurate information to the professional.
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Related Terms
Penalty Abatement
Penalty abatement is the removal or reduction of IRS penalties due to reasonable cause or first-time penalty abatement (FTA) relief for taxpayers with a clean compliance history.
Circular 230
Circular 230 is the Treasury Department publication that governs the practice of tax professionals before the IRS, establishing standards of conduct, penalties for violations, and rules for written tax advice.
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