Tax Penalties

Anyone who has ever encountered a tax problem with the IRS or a state-taxing agency knows the magnitude of the penalties levied by the government for non-compliance. Because of the rapid accrual of high tax penalties and interest, what starts as a manageable tax problem can quickly escalate to unmanageable levels. I am often asked to help clients deal with tax penalty issues.

The Internal Revenue allows you to avoid tax penalties if you have a valid excuse, known as reasonable cause. The following information is excerpted directly from the Internal Revenue Manual, IRM, section 20.1.1.3.1

Reasonable Cause

1. Reasonable cause is based on all the facts and circumstances in each situation and allows the Service to provide relief from a penalty that would otherwise be assessed. Reasonable cause relief is generally granted when the taxpayer exercises ordinary business care and prudence in determining their tax obligations but is unable to comply with those obligations.
   
   
2. In the interest of equitable treatment of the taxpayer and effective tax administration, the nonassertion or abatement of civil penalties based on reasonable cause or other relief provisions provided in this IRM must be made in a consistent manner and should conform with the considerations specified in the Internal Revenue Code (IRC), Regulations (Treas. Regs.), Policy Statements, and Part 120.1.
   
   
3. Reasonable cause relief is not available for all penalties; however, other exceptions may apply.