Taxpayers aren't always able to pay their taxes on time. Failing to pay on time not only triggers interest payments but may also involve other financial penalties. In some cases, taxpayers may get relief from penalties if they can show reasonable cause for why they failed to file on time.

The key with the reasonable cause defense is that a taxpayer must be able to show that they acted with reasonable cause and good faith. The IRS makes the call on a case-by-case basis, and the types of penalties incurred can also impact the outcome of using this defense.

What May Fall Under Reasonable Cause?

The IRS doesn't have hard-and-fast rules related to allowing the reasonable cause defense. They consider a taxpayer's unique circumstances when making a decision.

The agency has, however, provided guidelines on circumstances that are more likely to result in waiving penalties. These include natural disasters, civil disturbances, inability to obtain records, and system issues that delayed timely electronic filing or payment. In addition, the taxpayer or an immediate family member suffering death, serious illness, or an unavoidable absence can also be grounds for excusing penalties.

A taxpayer who was in a coma after an accident in early April, for example, may be more likely to successfully argue a reasonable cause defense compared to an individual who sprained their ankle and was stuck at home but had continued to work during their recovery.

What is Less Likely to Fall Under Reasonable Cause?

The IRS also provides guidelines for situations that are unlikely to result in waiving of penalties. These include:

• Reliance on a tax professional
• Lack of knowledge
• Mistakes and oversights
• Lack of funds

The details of a taxpayer's circumstances can make a huge difference here. If, for example, a taxpayer can show that they made a mistake but were trying to comply with the law, the IRS may be more likely to grant them relief from penalties.

In comparison, failing to file taxes on time because a taxpayer didn't know the deadline is unlikely to be successful. Again, however, the reasonable cause defense focuses on a taxpayer's specific circumstances.

Get Help From a Certified Tax Law Specialist

If you're facing penalties related to unpaid taxes, call Senior Partner, Tax Controversy Attorney, and former IRS attorney Brandon A. Keim at (602) 200-7399 or contact him online to discuss your options.