If a taxpayer tries to comply with the requirements of the law but was unable to do so because of circumstances beyond his or her control, help may be available if the taxpayer has “Reasonable Cause,” which is a type of penalty relief offered by the IRS.
The IRS will consider any sound reason for failing to file a tax return, make a deposit, or pay tax when due. Viable reasons include:
- Fire, casualty, natural disaster or other disturbances;
- Inability to obtain records;
- Death, serious illness, incapacitation or unavoidable absence of the taxpayer or a member of the taxpayer’s immediate family;
- Any other reason which establishes that a taxpayer used all ordinary business care and prudence to meet his or her federal tax obligations.
“Reasonable Cause” is based on all the facts and circumstances of a taxpayer’s current situation. As a “catch-all” reason, the IRS considers any reason which establishes that a taxpayer used all ordinary care and prudence to meet his or her tax obligations. In this situation, it is important that the taxpayer possesses some evidence and documentation that can establish facts in support of any contention that all efforts were used to pay a tax obligation.
Facts Establishing Reasonable Cause
The IRS must have knowledge of the following facts to determine whether “Reasonable Cause” exists:
- What happened, and when did it happen?
- What facts and circumstances prevented the taxpayer from filing his or her return or paying tax during the period a return was not filed and/or taxes were not paid in a timely fashion?
- How did the facts and circumstances affect the taxpayer’s ability to file and/or pay taxes or perform other day-to-day responsibilities?
- Once the facts and circumstances changed, what actions did the taxpayer take to file and/or pay his or her taxes?
- In the case of a Corporation, Estate or Trust, did the affected person or a member of that individual’s immediate family have the sole authority to execute the return or make the deposit or payment?
Necessary Documentation
An explanation in support of a reasonable cause explanation requires that a taxpayer provides documentation to support a claim, such as the following:
- Hospital or court records or a letter from a physician to establish illness or incapacitation, with specific start and end dates.
- Documentation of natural disasters or other events that prevented compliance.
Any proof of “Reasonable Cause” requires an organized presentation of facts and the underlying documentation to support them. An experienced tax attorney can help. Call The Gartzman Law Firm at (770) 939-7710. Use our simple contact form to arrange a free consultation today.