| What
types of events will support a reasonable cause claim? The following
are the most common that have been successful:
 (1)
Erroneous information was given the taxpayer by an IRS employee
or publication. If this occurred in your case, you would be
in the strongest position if you kept detailed records of
the phone call, meeting, or publication in which IRS erred.
(2)
Erroneous information was given the taxpayer by a tax practitioner.
General reliance on a tax expert for tax help doesn’t
relieve a taxpayer who will be considered to be aware of commonly-known
facts such as the filing and payment deadlines. However, where
a tax expert, for example, incorrectly advised taxpayer that
he is not obligated to file or that he will have no tax liability
upon an analysis of the tax law, the reasonable cause excuse
may be available.
(3)
Death or serious illness of the taxpayer or a member of his
immediate family.
You may qualify for payment extensions due to
financial hardship. However, by itself, financial hardship
has rarely been found to support a reasonable cause excuse.
IRS, and some courts, support a “bright line” rule
under which financial difficulties can never be reasonable
cause for purposes of the penalty for failure to pay taxes,
but other courts have not been willing to go quite that far.
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The following, on the other hand, won’t
establish reasonable cause:
(1)
Lack of necessary information to prepare the tax return.
(2)
General overwork, stress, or health problems of the taxpayer
or tax return preparer.
(3)
Ignorance of the law (not based on the advice of a tax expert).
In some cases, however, where the taxpayer’s mistaken
belief, e.g., that he was not required to file, was “reasonable”
or due to extraordinarily complex tax concepts, reasonable
cause was found.
(4)
Constitutional, religious, etc., objections. Philosophical
arguments, such as the tax laws are unconstitutional, are
consistently given short shrift by the courts and IRS.
If you are filing or paying late but can establish
reasonable cause, don’t wait for the penalties to be
assessed. A statement establishing reasonable cause for your
situation should be attached to the return and may prevent
the penalties from the start. If you would like me to help
you draft the statement to present your situation in the most
favorable light, please call.
If IRS has already added civil penalties on
top of your tax liability, there are two reasons you should
call. First, I can review IRS’s calculation of the penalties.
Second, we should discuss whether your circumstances are explainable
in a way that could support a reasonable cause excuse.
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