IRM 20.1.1.3.6: Reasonable Cause for Penalty Relief

To get an IRS penalty removed under reasonable cause penalty relief, you have to show that you exercised ordinary business care and prudence in handling your tax obligations but still could not file or pay on time, and then back that story up with documents. The IRS decides these requests case by case, and the strength of your claim comes down to what happened, when it happened, and how quickly you got back into compliance once you could.

What the Reasonable Cause Standard Requires

The test is one of conduct, not sympathy. For an individual, ordinary business care and prudence means the level of attention a reasonably careful person would give their financial affairs. For a business, it means the practices a well-run operation would maintain.¹

When an IRS employee reviews your request, they walk through a short list of practical questions. What happened, and when? How did those circumstances prevent you from filing or paying? Once the obstacle cleared, how quickly did you come into compliance?¹

That last question carries more weight than most taxpayers expect. A legitimate reason for missing a deadline loses force if you waited months after your situation improved before acting. The IRM also states that qualifying explanations are not limited to the examples listed in the manual. Any situation where you genuinely tried to comply but couldn’t will be considered, if you can prove it.¹

Which Penalties Are Eligible

Reasonable cause relief covers a broad slate of IRS penalties, not just the two most people know about. The eligible categories are:²

Failure to file, which runs 5% of the unpaid tax per month or partial month, capped at 25%. If a return is more than 60 days late, the minimum penalty is the lesser of $525 or 100% of the tax owed for returns required to be filed in 2026.³⁴
Failure to pay, at 0.5% of the unpaid tax per month, also capped at 25%.⁵
Failure to deposit employment taxes on time.⁶
Information return penalties.
Accuracy-related penalties.
Dishonored check penalties.
Underpayment of estimated tax, for both individuals and corporations.

Circumstances the IRS Accepts

The manual identifies several recurring categories. Each one turns on documentation and on the link between the event and your inability to comply.

Illness, Death, or Unavoidable Absence

A serious illness, a death, or an unavoidable absence affecting you or an immediate family member can qualify. The IRS weighs the severity and duration of the illness, the dates involved, the relationship to the person affected, and whether the event also disrupted other business obligations.¹ Hospital records, a physician’s statement describing the incapacity period, or a death certificate all help. The agency also looks at whether you attended to your tax duties promptly once the illness passed or a reasonable period after a death.

Natural Disasters, Fires, and Casualties

Fires, natural disasters, and similar events that destroy records or block you from filing or paying are accepted grounds.⁷ Insurance claims, official disaster declarations, and police or fire department reports support the claim. If the President declares a federal disaster in your area, the IRS often grants automatic filing and payment extensions for affected taxpayers, which may make a separate abatement request unnecessary.

Inability to Obtain Records

If you couldn’t get records you needed to file accurately despite reasonable efforts, the IRS will consider relief. Key factors: why the records were necessary, what steps you took to obtain them, and whether you explored alternatives like estimating the missing figures or contacting the IRS for guidance.¹ Keep copies of your requests and any responses. The agency will also ask how fast you filed once you finally had the information.

Reliance on Professional Tax Advice

This is where taxpayers often misjudge their case. Relying on a tax professional’s erroneous advice can be reasonable cause for substantive tax questions, such as how to report a transaction or whether income is taxable. It does not excuse late filing or late payment, because timely compliance is treated as your personal responsibility no matter who prepares the return.⁸

Even for substantive matters, the IRS applies a three-part test. The advisor must have been competent in the relevant area of tax law, you must have given the advisor all necessary and accurate information, and you must have actually relied on the advice.⁸ Handing your CPA incomplete records and blaming the result on them will not work.

Mistakes and Ignorance of the Law

A good-faith mistake or genuine ignorance of a tax requirement can support reasonable cause, but the bar is higher. The IRS considers when and how you discovered the mistake, how quickly you corrected it, and whether the duty had been delegated to someone else. A claim that you didn’t know about a widely publicized filing requirement rarely succeeds. An obscure rule catching a first-time filer is treated differently.¹

Check First-Time Abate Before You Argue Reasonable Cause

Before building a reasonable cause file, see whether you qualify for First-Time Abate (FTA), an administrative waiver that requires no specific excuse. Starting with the 2026 filing season, the IRS automatically applies FTA to eligible taxpayers, so you may not have to ask.⁹

FTA covers three penalties: failure to file, failure to pay, and failure to deposit. To qualify you must have filed all required returns (or valid extensions) for the prior three tax years and had no penalties during that same three-year window. FTA isn’t a lifetime one-shot; you can qualify again later as long as you keep a clean three-year record.⁹

If you ask for reasonable cause relief and the IRS sees you qualify for FTA, they’ll apply FTA instead and notify you, because it’s simpler to grant and doesn’t require proof of hardship.⁹ Accuracy-related penalties and estimated tax penalties are not FTA-eligible, so reasonable cause remains your only route for those.

How to Request Relief

You have three ways in.

The quickest is calling the toll-free number on your penalty notice. Some requests are resolved on the call itself, and the agent will tell you whether it’s approved.² Have the notice, the specific penalty you want removed, and your explanation ready before you dial.

If the phone request is denied or you want a paper trail, file Form 843, Claim for Refund and Request for Abatement. Check box 5c for “Reasonable cause or other reason allowed under the law,” attach a detailed written explanation, and include your supporting documentation. Mail it to the IRS service center where you would file a current-year return for the tax type involved.¹⁰

You can also send a written letter to the IRS office that issued the notice. Include your name, taxpayer identification number, the tax period, the specific penalty, and a clear narrative explaining why you had reasonable cause. Attach the same documentation you would send with Form 843.

The review is case by case and can take several weeks or longer. If you’ve already paid the penalty and the abatement succeeds, you’ll receive a refund of the penalty amount.

What Happens to Interest

When the IRS reduces or removes a penalty, it also reduces or removes the interest that accrued on that penalty.² Interest on the underlying tax is separate. If you owed $5,000 in tax and were hit with a $1,000 penalty, a successful abatement wipes out the $1,000 penalty and the interest charged on that $1,000, but the interest on the $5,000 tax debt stays. Taxpayers often expect abatement to erase every interest charge, and it doesn’t.

Deadline to Claim a Refund of a Paid Penalty

If the penalty is already paid and you want it back, there’s a filing deadline. You generally must file the claim by the later of three years from the date you filed the return or two years from the date you paid the penalty.¹¹ Miss that window and the IRS cannot refund, however strong your reasonable cause story.

The amount you can recover also depends on which rule gets you in the door. Filing within the three-year window limits your refund to payments made during the three years before the claim, plus any extension period. Filing under the two-year rule limits it to what you paid in the two years before filing. Extended deadlines can apply if you signed a written agreement with the IRS to extend the assessment period, were affected by a presidentially declared disaster, or served in a combat zone.¹¹

If the IRS Denies Your Request

A denial isn’t the end. The IRS directs taxpayers whose reasonable cause requests are denied to its penalty appeal process, which routes the case to the IRS Independent Office of Appeals, a separate group from the one that turned you down.²

If the denial arrives alongside a Collection Due Process (CDP) notice, meaning the IRS is moving toward a lien or levy, you can request a formal CDP hearing on Form 12153. Send it to the address on your CDP notice within the timeframe the notice states. In a timely CDP hearing, Appeals can remove penalties if you show reasonable cause, and the request also pauses levy action while your case is under review.¹²

Miss the CDP deadline and you can still request an “equivalent hearing” within one year, but the protections shrink. An equivalent hearing does not stop the IRS from levying, does not suspend the ten-year collection statute, and does not give you the right to challenge the Appeals decision in court.¹² The initial CDP deadline is worth guarding.

1
Internal Revenue Service. IRM 20.1.1 Introduction and Penalty Relief
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Internal Revenue Service. Penalty Relief
3
Internal Revenue Service. Failure to File Penalty
4
Internal Revenue Service. Topic No. 653, IRS Notices and Bills, Penalties and Interest Charges
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Office of the Law Revision Counsel. 26 USC 6651 – Failure to File Tax Return or to Pay Tax
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Internal Revenue Service. IRM 20.1.4 Failure to Deposit Penalty
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Internal Revenue Service. Penalty Relief for Reasonable Cause
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Internal Revenue Service. Reasonable Cause and Good Faith Practice Unit
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Internal Revenue Service. Administrative Penalty Relief
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Internal Revenue Service. Instructions for Form 843
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Internal Revenue Service. Time You Can Claim a Credit or Refund
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Internal Revenue Service. Form 12153, Request for a Collection Due Process or Equivalent Hearing