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Tax Law FAQ

Do I qualify for penalty abatement?

The IRS has a Penalty Handbook that sets forth the criteria for relief from penalties. A criterial for relief of some civil penalties is a showing of reasonable cause.  See IRM (11-25-2011).  The IRS Penalty Handbook provides, “[r]easonable cause relief is generally granted when the taxpayer exercised ordinary business care and prudence in determining his or her tax obligations but nevertheless failed to comply with those obligations.” See IRM (11-25-2011).

The IRS Penalty further states:

Ordinary business care and prudence includes making provisions for business obligations to be met when reasonably foreseeable events occur. A taxpayer may establish reasonable cause by providing facts and circumstances showing that he or she exercised ordinary business care and prudence (taking that degree of care that a reasonably prudent person would exercise), but nevertheless were unable to comply with the law.

See IRM (02-22-2008).  In determining if a taxpayer exercised ordinary business care and prudence, IRS agents review the following:

  • Taxpayer’s reason for why the penalty should be abated
  • Compliance history.
  • Length of time between the event cited and the reason for the noncompliance and subsequent compliance.
  • Whether the taxpayer could have anticipated the event that caused the noncompliance.

Id. Individuals or companies seeking relief from civil penalties should contact competent tax counsel, who can explain your options and develop a defensible solution.