Panic! You just received a notice from the IRS. The fees and penalties are high. Good news, you may be eligible to have the penalties removed. Sometimes, despite your best efforts, you end up filing your taxes late and paying late. The Internal Revenue Service assesses late penalties which might be removed on a case by case basis provided you can show Reasonable Cause. Any reason that establishes a taxpayer exercised ordinary business care and prudence but was unable to comply with the tax law may be considered for penalty abatement.
Ordinary business care and prudence include making provision for business obligations to be met when reasonably foreseeable events occur. A taxpayer may establish reasonable cause by providing facts and circumstances showing you exercised ordinary business care and prudence, but nevertheless were unable to comply with the law.
Some of the questions you will be asked include:
- What happened?
- When did it happen?
- Where did it happen?
- Who is responsible?
- Why couldn’t the taxpayer comply?
- How did the taxpayer try to comply?
Your reason should clearly address the penalty imposed. To show reasonable cause, your dates and explanations should clearly correspond with events on which the penalties are based.
In determining if you, the taxpayer, exercised ordinary business care and prudence, the IRS will check your compliance history for payment patterns (generally the previous 3 years). The same penalty previously assessed may indicate you are not exercising ordinary business care.
The IRS will consider the length of time between the event cited as reason for the noncompliance and your subsequent compliance.
Were the circumstances beyond your control? Reasonable cause is generally established when the taxpayer exercises ordinary business care and prudence but due to circumstances beyond your control, you were unable to timely meet your tax obligation. Remember that your requirements to meet the tax law are ongoing. Ordinary business care and prudence requires you to continue to attempt to meet the requirements, even though late.
Detailed, reasonable answers are required to make a case for penalty abatement due to Reasonable Cause
If you receive a letter from the IRS and don’t know what to do, please call A Cloud Thing for a Free 30 minute assessment.