Overview

A reasonable cause argument is how a taxpayer asks the IRS to forgive a penalty by demonstrating that the failure to file, pay, or otherwise comply was not due to willful neglect but to circumstances beyond their control. The IRS explicitly recognizes reasonable cause as a valid basis for penalty relief when taxpayers provide a credible, documented explanation (IRS: Penalty Relief) (see also Publication 556) (https://www.irs.gov/businesses/small-businesses-self-employed/penalties) (https://www.irs.gov/pub/irs-pdf/p556.pdf).

This article gives a practical, step-by-step approach to building a reasonable cause argument, a checklist of evidence, common pitfalls, and realistic expectations based on more than 15 years of tax-practice experience.

Why it matters

Penalties can multiply quickly: a small late-payment penalty or failure-to-file fee can grow with interest and additional assessments. A successful reasonable cause request can save thousands of dollars and stop further penalty accrual. It’s also a common route to relief when First-Time Abatement or other streamlined programs don’t apply.

What the IRS looks for when evaluating reasonable cause

The IRS evaluates reasonable cause on the facts and circumstances of each case. Typical factors reviewers consider include:

  • Whether the taxpayer exercised ordinary business care and prudence but still could not comply.
  • Whether the event was unavoidable and the taxpayer acted promptly once the issue was discovered.
  • The taxpayer’s compliance history.
  • Evidence that the taxpayer relied on erroneous written advice from the IRS or a competent tax professional (when applicable).

These standards are summarized in IRS guidance on penalty relief and in Publication 556 (IRS, Penalty Relief; Publication 556).

Step-by-step: How to build a reasonable cause argument

  1. Read the notice carefully

    The IRS penalty notice will list the type of penalty, the tax period involved, and the deadline to respond. Don’t miss the response deadline shown on the notice—many notices give 30 days to appeal or respond, but the exact period varies. Always follow the instructions and address listed on the notice.

  2. Identify the specific penalty and the legal basis for relief

    Common penalties challenged with reasonable cause include failure-to-file, failure-to-pay, accuracy-related penalties, and failure-to-deposit for employment taxes. Make sure you identify the penalty code and note any alternative relief programs such as First-Time Abatement (FTA) or disaster relief.

  3. Gather supporting documentation

    Evidence is the most important part of a reasonable cause package. Include any documents that substantiate the event and its timing. A practical checklist:

  • Medical records, hospital admission/discharge dates, prescription records for serious illness.

  • Police reports, insurance claims, FEMA or state disaster declarations for natural disasters.

  • Correspondence with the IRS (CP notices, transcripts) that show confusing or inaccurate guidance.

  • Banking records, canceled checks, or payment confirmations showing attempts to pay.

  • Communications with tax preparers or professionals that show reliance on their advice (signed engagement letters, emails, invoices).

    For more on documentation, see our guide: How to Document Reasonable Cause for Penalty Relief.

  1. Draft a clear, chronological statement of facts

    Write a short, factual narrative (one to two pages) that:

  • States the exact date(s) of the event that led to the failure.

  • Explains why the taxpayer could not comply despite exercising ordinary care.

  • Describes the taxpayer’s actions once the problem was discovered.

  • Lists the attached documents and how they support each claim.

    Keep language concrete—avoid emotional language or speculation. In my practice, the strongest requests present a tight timeline and direct documentary links to each claim.

  1. Explain reliance on professional advice when relevant

    If you relied on a tax professional, explain the advice you received, attach the written advice or communications, and confirm the professional’s credentials. The IRS is more likely to accept reliance-based relief if the advice was reasonable and relied upon in good faith.

  2. Submit the request correctly

    Respond using the address or process identified on the IRS notice. Some penalty notices allow online responses through the taxpayer’s IRS Online Account; others require mail. Keep copies of everything you send and use certified mail or other trackable delivery when mailing.

  3. Follow up and prepare for next steps

    The IRS can take several weeks or months to decide. If the request is denied, you may have appeal rights through the IRS Office of Appeals—see our article: How to Appeal an IRS Penalty Notice: Administrative and Legal Options.

Evidence-based examples (real-world practice)

  • Medical emergency: A client hospitalized for weeks missed a filing deadline. We provided hospital admission records, physician notes, and a detailed timeline of treatment and recovery. The IRS abated the failure-to-file penalty.
  • Natural disaster: After a flood destroyed records, the client supplied FEMA/state disaster declarations, insurance claims, and bank statements. The IRS provided relief based on those documents.

These examples reflect typical outcomes when the facts and documentation align.

Common mistakes to avoid

  • Submitting only a verbal explanation: never rely on oral statements—support claims with documents.
  • Waiting too long to respond: delays can reduce your options and make abatement harder.
  • Using vague or inconsistent dates: credibility matters. Provide precise dates and corroborating proof.
  • Overstating reliance on a tax professional: the IRS will evaluate whether the professional’s advice was reasonable under the circumstances.

When other relief options may be better

Reasonable cause is not the only option. Depending on your facts, consider:

  • First-Time Abatement (FTA) for qualifying taxpayers with clean filing histories (see IRS FTA guidance).
  • Disaster relief programs when a federally declared disaster affects filing or payments.
  • Penalty abatement through collection alternatives like installment agreements (which can limit future penalty accrual).

For small businesses and common scenarios, our related pages offer targeted strategies: Penalty Abatement: When and How to Request Relief and Penalty Relief Strategies for Small Business Owners.

How the IRS decides and what to expect after submission

The IRS reviews the written statement and supporting documents. Decisions vary: full abatement, partial abatement, or denial. If denied, the notice will explain appeal rights and deadlines. Typical timeframes range from 30–120 days, though complex cases can take longer.

If the IRS requests more information, respond promptly and supply the requested items. Keep a clear paper trail of all correspondence.

Sample language (brief) for an opening sentence in your letter

“I respectfully request abatement of the penalty(s) assessed for [tax period] due to [brief cause — e.g., documented hospitalization from DATE to DATE], despite exercising ordinary business care and prudence. Attached are medical records, hospital discharge summary, and payment records showing prompt action once I was able to act.”

For full templates and sample letters, see our repository: Templates for Penalty Appeal Letters (Reasonable Cause Examples).

Final professional tips from my practice

  • Be chronological and concise. The IRS reviewer should be able to match each assertion to a piece of evidence quickly.
  • Include a cover sheet listing documents and their relevance.
  • Where possible, show mitigation—payments made, corrective returns filed, or steps taken to prevent recurrence.
  • If you have a complicated history or larger dollar amounts at stake, get professional representation early.

Disclaimer

This article is educational and not individualized tax, legal, or accounting advice. Tax law changes and specific facts affect outcomes—consult a qualified tax professional or attorney about your case. Official IRS guidance on penalties and relief is available at the IRS website (https://www.irs.gov).

Authoritative sources