Taxterity research

Penalty relief evidence: building a reasonable cause file

Reviewed 2026-09-15 · AI-assisted draft and editing; sources and limitations remain visible for independent review.

Answer: Reasonable cause is not one standard. For the failure to file and failure to pay additions in section 6651, the statute withholds the penalty where the failure is due to reasonable cause and not due to willful neglect, and the IRM applies an ordinary business care and prudence test. For the accuracy-related penalty in section 6662 and the fraud penalty in section 6663, the defense lives in section 6664(c)(1), which requires both reasonable cause for the portion of the underpayment and that the taxpayer acted in good faith, and which is switched off for several categories including transactions lacking economic substance. Separate from either is administrative relief: the IRS describes First Time Abate for failure to file, failure to pay and failure to deposit penalties based on a clean prior compliance history rather than on any explanation, and its administrative penalty relief page states that First Time Abate is transitioning to a new relief called Automatic Exemption from Penalty, beginning summer 2026, which is applied automatically when an original return completes processing rather than on request. Because administrative relief turns on filing and payment history and requires no supporting documents, establishing whether it is available is a cheaper first question than assembling an evidentiary record.

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Scope

Jurisdiction: United States — federal

Tax periods: Penalty amounts vary by return due date, Checked 2026-09-15

Assumptions

Exclusions

1. Name the penalty before choosing the defense

The defense follows the Code section, so the first entry in the file is which penalty was imposed and under which subsection. Section 6651(a)(1) adds 5 percent of the tax for each month or part of a month a return is late, to a maximum of 25 percent, unless it is shown that the failure is due to reasonable cause and not due to willful neglect. Section 6651(a)(2) adds 0.5 percent per month for failure to pay the amount shown on the return, and section 6651(a)(3) applies a similar rate to an amount required to be shown but not shown, after notice and demand, with the statute allowing 21 calendar days to pay, or 10 business days where the amount is at least 100,000 dollars.

Two further mechanics change the number without changing the defense. Section 6651(c)(1) reduces the failure to file addition by the failure to pay addition for any month in which both apply, and section 6651(d) increases the 0.5 percent rate to 1 percent once a levy notice under section 6331(d) or a notice and demand for immediate payment has been issued. Section 6651(f) raises the monthly rate to 15 percent with a 75 percent maximum where the failure to file is fraudulent.

The flush language of section 6651(a) sets a minimum addition where a return is more than 60 days late: the lesser of a stated dollar amount, which the statute indexes for inflation, or 100 percent of the tax required to be shown. The IRS failure to file penalty page publishes the indexed figure by the return's due date, listing 485 dollars for returns due during 2024, 510 dollars for returns due during 2025, and 525 dollars for returns due after 31 December 2025. Read the figure for the due date of the return in question rather than the one remembered from a prior year.

2. Ask the administrative question first

Administrative relief is decided on compliance history, not on an explanation, so it costs less to establish and it does not require the taxpayer to disclose anything about the reason for the failure. The IRS administrative penalty relief page describes First Time Abate for the failure to file, failure to pay and failure to deposit penalties, and the IRM carries the same relief at IRM 20.1.1.3.3.2.1.

The eligibility condition the IRS page states is a timely compliance history: the same return type as the original return was timely filed for the prior three years, or twelve consecutive quarters, and either no penalty other than the estimated tax penalty was assessed for those years or a penalty was assessed but later abated for reasonable cause or IRS error. For business returns the page adds that the failure to deposit penalty must not have been waived four or more times during the prior three years or twelve consecutive quarters, and must not have been charged for avoidance of the Electronic Federal Tax Payment System.

The same page states that a taxpayer seeking First Time Abate must contact the IRS, by telephone using the number in the top right corner of the notice or by sending a written statement or Form 843 to the address in the Form 843 instructions, but need not name the relief sought. It then states that First Time Abate is transitioning to a new relief called Automatic Exemption from Penalty, beginning summer 2026. Under that relief, where a taxpayer files or pays late in the current year but has timely filed returns and paid tax due for the three prior years, or twelve consecutive quarters for quarterly filers, the IRS does not assess the failure to file, failure to pay or failure to deposit penalty. The page lists the covered returns as Forms 1040, 1065 and 1120, the Forms 940, 941, 943, 944 and 945 series, and Form CT-1, and states that the relief begins with 2025 tax year returns and subsequent, and 2026 quarterly returns and subsequent.

Two features of the newer relief change the workflow rather than the standard. It is applied when the original return completes processing, so there is nothing to request and the taxpayer receives a notice explaining that the relief was applied; and it leaves the taxpayer liable for unpaid tax, interest, and any penalty outside its scope. The page also identifies the eligible failure to file penalties by statute, naming section 6651(a)(1) for tax returns, section 6698(a)(1) for partnership returns and section 6699(a)(1) for S corporation returns. Because the transition was under way at the review date, confirm on the current page which relief governs the period in question.

3. Build the record the IRM actually evaluates

Where administrative relief is unavailable or already used, the section 6651 defense is reasonable cause. IRM 20.1.1.3.2 frames it as relief generally granted where the taxpayer exercised ordinary business care and prudence in determining their tax obligations but was nevertheless unable to comply. The test is therefore comparative: it asks what a reasonably careful taxpayer in the same circumstances would have managed, not whether the hardship was severe in the abstract.

IRM 20.1.1.3.2 sets out five considerations the evaluation turns on, and they make a serviceable file structure: what happened and when it happened; what facts and circumstances prevented the taxpayer from filing, paying or otherwise complying during the period of noncompliance; how those facts and circumstances resulted in the noncompliance; how the taxpayer handled the remainder of their affairs during that same period; and what attempt the taxpayer made to comply once the circumstances changed. The same subsection adds that reasonable cause does not exist if the taxpayer fails to comply within a reasonable period after those circumstances cease.

The fourth of those considerations is the one most often missing from a request, and it is frequently dispositive. A taxpayer who was incapacitated but who continued to run a business, make payroll and sign contracts during the same weeks is answering that question unfavorably whether or not the request addresses it. Assemble the timeline of the taxpayer's other activity in the same period before drafting, so the request is written with that evidence rather than around it.

The IRM also treats a return to compliance as part of the showing. Record the date the delinquent return was filed or the balance paid, and what made that possible, because the interval between the end of the impediment and the return to compliance is itself evidence about ordinary business care and prudence.

4. The evidence the IRS names, and the reasons it rejects

The IRS page on penalty relief for reasonable cause lists circumstances that may qualify for a failure to file or pay on time: fires, natural disasters or civil disturbances; inability to get records; death, serious illness or unavoidable absence of the taxpayer or an immediate family member; and system issues that delayed a timely electronic filing or payment. It asks the taxpayer to explain what happened and when it happened, and what attempts were made to file or pay.

The same page names the supporting documentation to include: hospital or court records or a letter from a physician to confirm illness or incapacitation, with start and end dates; documentation of a natural disaster or other disturbance; copies of relevant written letters and responses; and copies of receipts, forms or other documentation. The start and end dates matter as much as the documents, because they are what allows the impediment to be aligned against the filing or payment due date.

The page is equally explicit about what does not generally qualify for these penalties. It lists reliance on a tax professional, stating that the taxpayer is generally responsible for complying with tax law even if someone else handles their taxes; lack of knowledge, stating the taxpayer is responsible for knowing or getting advice on filing and paying on time; mistakes and oversights; and lack of funds, which the page says is not by itself reasonable cause for failing to pay or deposit. A request built on one of these for a section 6651 penalty is contending against the IRS's own published position and should say why the facts go beyond it.

Requests are made by telephone using the number on the notice, or in writing with Form 843, Claim for Refund and Request for Abatement. The sibling page in this cluster, Refund claims under section 6511: two clocks and a look-back, covers the separate limitation analysis that applies when the relief sought is a refund of an amount already paid.

5. Accuracy penalties run on a different defense

Section 6662(a) adds 20 percent of the portion of an underpayment attributable to a listed item, and section 6662(b) lists those items, including negligence or disregard of rules or regulations, a substantial understatement of income tax, a substantial valuation misstatement, and further categories added over time. Section 6662(c) defines negligence to include any failure to make a reasonable attempt to comply, and disregard to include careless, reckless or intentional disregard. Sections 6662(h), (i) and (j) raise the rate to 40 percent for gross valuation misstatements, nondisclosed noneconomic substance transactions, and undisclosed foreign financial asset understatements.

For a substantial understatement, section 6662(d)(1)(A) sets the threshold for an individual as the greater of 10 percent of the tax required to be shown or 5,000 dollars; section 6662(d)(1)(B) applies a different formula to corporations other than S corporations and personal holding companies, and section 6662(d)(1)(C) substitutes 5 percent for 10 percent for any taxpayer claiming a section 199A deduction. Section 6662(d)(2)(B) reduces the understatement for an item where there was substantial authority for the treatment, or where the relevant facts were adequately disclosed and there was a reasonable basis for the treatment. That reduction is a computational route that can remove the penalty without ever reaching a reasonable cause argument, and it depends on what was disclosed on the return as filed.

The defense itself is section 6664(c)(1), which provides that no penalty shall be imposed under section 6662 or 6663 for any portion of an underpayment if it is shown that there was reasonable cause for that portion and that the taxpayer acted in good faith with respect to it. Two features distinguish it from the section 6651 defense: it is applied portion by portion rather than to the return as a whole, and it adds a good faith element. It is also unavailable for several categories, including underpayments attributable to transactions described in section 6662(b)(6) and disallowances under section 6662(b)(10), and it is restricted for valuation overstatements on charitable deduction property.

Because reliance on an adviser is treated very differently under the accuracy-penalty defense than under the filing and payment penalties, do not carry a conclusion from one analysis into the other. Separate the sections in the workpaper from the start.

Putting the request together

A defensible file has five parts: the penalty section and subsection with the computation; the administrative relief determination with the compliance history that supports it; the reasonable cause narrative organized around the IRM's five considerations; the dated documentary exhibits; and a short statement of what is not in evidence and why. The last part is what keeps the request honest when a record cannot be obtained.

Taxterity can be asked a research question about which penalty section and which relief provision govern a given notice, and its Draft a Tax Document workflow can help structure the request itself. Every dollar figure, date and eligibility condition should then be checked against the current statute and the current IRS penalty pages before the request is sent, since the indexed amounts and the administrative program are both moving.

Related research

Official sources

  1. 26 U.S.C. 6651 — Failure to file tax return or to pay tax — Subsection (a)(1) 5 percent monthly rate and the reasonable cause and not willful neglect clause; (a)(2), (a)(3); flush 60-day minimum penalty; (c)(1); (d); (f). Preliminary edition read 2026-09-15
  2. 26 U.S.C. 6662 — Imposition of accuracy-related penalty on underpayments — Subsection (a) 20 percent rate; (b) list of items; (c) negligence and disregard; (d)(1) substantial understatement thresholds and (d)(2)(B) substantial authority and adequate disclosure reduction; (h), (i) and (j) 40 percent rates
  3. 26 U.S.C. 6664 — Definitions and special rules — Subsection (c)(1) reasonable cause and good faith exception to sections 6662 and 6663, applied portion by portion; exclusions for section 6662(b)(6) and (b)(10) and charitable property overstatements
  4. IRS Internal Revenue Manual 20.1.1 — Introduction and Penalty Relief — IRM 20.1.1.3.2 Reasonable Cause, the ordinary business care and prudence standard and the five considerations; IRM 20.1.1.3.2.2 Ordinary Business Care and Prudence, the review factors; IRM 20.1.1.3.3.2.1 First Time Abate
  5. IRS — Penalty relief for reasonable cause — Qualifying circumstances list; the supporting documentation list including records with start and end dates; the four categories that do not generally qualify; how to request relief by telephone or with Form 843. Page reviewed 21-Jun-2026
  6. IRS — Administrative penalty relief — First Time Abate: covered penalties; timely compliance history for the prior three years or twelve consecutive quarters; business conditions; successor Automatic Exemption from Penalty, Summer 2026
  7. IRS — Failure to file penalty — 5 percent monthly rate and 25 percent maximum; the more-than-60-days minimum penalty amounts by return due date of 485, 510 and 525 dollars; the reduction where the failure to pay penalty applies in the same month. Page reviewed 07-Feb-2026

Limitations