REASONABLE CAUSE STATEMENT FOR PENALTY ABATEMENT

Taxpayer Information

[__/__/____]

Internal Revenue Service
[________________________________]
[________________________________]
[________________________________]

Via Certified Mail, Return Receipt Requested

Re: Request for Penalty Abatement Based on Reasonable Cause
Taxpayer: [________________________________]
SSN/EIN: [________________________________]
Tax Period(s): [________________________________]
Penalty Type: [________________________________]
IRS Notice: [________________________________] dated [__/__/____]
Form 843 Attached: ☐ Yes ☐ No

To Whom It May Concern:

I respectfully request abatement of the [failure to file / failure to pay / accuracy-related / other] penalty assessed for the tax period(s) identified above. This request is submitted pursuant to Internal Revenue Code ("IRC") § 6651(a), IRC § 6662(d), Treasury Regulation § 301.6651-1(c), and the reasonable cause provisions of IRM 20.1.1.3.2. The penalty should be abated because the taxpayer exercised ordinary business care and prudence but was nevertheless unable to comply with the tax obligation due to circumstances beyond the taxpayer's control.

I. PENALTY BACKGROUND

A. Penalty Assessed

The Internal Revenue Service assessed the following penalty(ies) against the taxpayer for the tax period(s) identified above:

B. Filing and Payment History

• Due date for the return/payment: [__/__/____]
• Extension filed: ☐ Yes (extension to [__/__/____]) ☐ No
• Actual date return filed: [__/__/____]
• Actual date payment made: [__/__/____]
• Days late: [____]

II. PRIMARY BASIS FOR ABATEMENT: FIRST TIME ABATEMENT (FTA)

A. First Time Abatement Policy — IRM 20.1.1.3.6.1

As a threshold matter, I request that the IRS apply the First Time Abatement (FTA) administrative waiver, which provides relief from the failure to file, failure to pay, and failure to deposit penalties for taxpayers with a clean compliance history. Under IRM 20.1.1.3.6.1, the FTA applies when:

☐ 1. Clean compliance history: The taxpayer has not been assessed any penalties (or all prior penalties have been abated) for the three tax years preceding the tax year at issue.
☐ 2. All required returns filed: The taxpayer has filed all currently required returns or has filed a valid extension of time to file.
☐ 3. Tax paid or payment arrangement: The taxpayer has paid, or arranged to pay, any tax currently due.

Application to this taxpayer:

• Tax year at issue: [____]
• Three preceding tax years: [____], [____], [____]
• Penalties assessed in preceding 3 years: ☐ None ☐ Yes, but all were abated
• All required returns filed: ☐ Yes ☐ No (explain: [________________________________])
• Tax paid or payment arrangement in place: ☐ Yes ☐ No (explain: [________________________________])

Note to IRS: Under IRM 20.1.1.3.6.1, if a taxpayer requests reasonable cause relief but IRS records indicate the taxpayer qualifies for FTA, the IRS should apply FTA and notify the taxpayer accordingly. I request that FTA be applied as the primary basis for abatement, with reasonable cause as the alternative basis.

B. FTA-Eligible Penalties

The FTA applies only to the following penalties:
- Failure to file penalty (IRC § 6651(a)(1))
- Failure to pay tax shown on return (IRC § 6651(a)(2))
- Failure to deposit penalty (IRC § 6656)

The FTA does not apply to accuracy-related penalties (IRC § 6662), estimated tax penalties (IRC § 6654/6655), fraud penalties (IRC § 6663), or information return penalties (IRC § 6721/6722). For those penalties, reasonable cause must be independently established.

III. ALTERNATIVE BASIS FOR ABATEMENT: REASONABLE CAUSE

A. Legal Standard for Reasonable Cause

Under IRC § 6651(a), the failure to file and failure to pay penalties do not apply if the taxpayer establishes that the failure was "due to reasonable cause and not due to willful neglect." Treasury Regulation § 301.6651-1(c)(1) defines "reasonable cause" as existing when "the taxpayer exercised ordinary business care and prudence and was nevertheless unable to file the return within the prescribed time" or pay the tax due.

The determination of reasonable cause is made on a case-by-case basis, considering all facts and circumstances. IRM 20.1.1.3.2.1 instructs IRS personnel to consider:
1. What happened and when did it happen?
2. What facts and circumstances prevented the taxpayer from filing the return or paying the tax on time?
3. How did the taxpayer handle the remainder of their affairs during the period of noncompliance?
4. Once the taxpayer was able to comply, how long did it take before the taxpayer actually complied?

B. Applicable Reasonable Cause Category

Select the applicable category and complete the corresponding section below. Multiple categories may apply.

Category 1: Serious Illness, Incapacity, or Death (IRM 20.1.1.3.2.2.1)

☐ This category applies

Factual Statement:

The taxpayer [or taxpayer's spouse / immediate family member / sole tax preparer] experienced a serious illness, injury, or incapacity that prevented timely [filing / payment]. Specifically:

• Name of person affected: [________________________________]
• Relationship to taxpayer: [________________________________]
• Nature of illness/injury/incapacity: [________________________________]
• Date of onset: [__/__/____]
• Date of recovery (or ongoing): [__/__/____]
• Duration of incapacity: [____] days/weeks/months
• How the condition prevented compliance: [________________________________]
• Treating physician (if applicable): [________________________________]

IRM Factors Considered:

Per IRM 20.1.1.3.2.2.1, the IRS considers:
- The nature and severity of the illness or injury
- Whether the condition was sudden or gradual in onset
- Whether the taxpayer was hospitalized
- Whether the taxpayer was able to conduct other business affairs during the period
- Whether the taxpayer could have reasonably delegated the tax obligation to another person
- How quickly the taxpayer complied once able to do so

Actions Taken:

☐ The taxpayer was unable to attend to business affairs during the period of illness
☐ The taxpayer was hospitalized from [__/__/____] to [__/__/____]
☐ The tax return was filed / payment was made within [____] days of recovery
☐ Medical documentation is enclosed

Category 2: Fire, Casualty, Natural Disaster, or Other Disturbance (IRM 20.1.1.3.2.2.2)

☐ This category applies

Factual Statement:

The taxpayer's records, home, or business were destroyed, damaged, or made inaccessible due to [fire / flood / hurricane / tornado / earthquake / other natural disaster / civil disturbance / other casualty]. Specifically:

• Nature of event: [________________________________]
• Date of event: [__/__/____]
• Location: [________________________________]
• Records or property affected: [________________________________]
• FEMA disaster declaration number (if applicable): [________________________________]
• Insurance claim filed: ☐ Yes ☐ No
• How the event prevented compliance: [________________________________]
• Steps taken to reconstruct records: [________________________________]
• Date compliance was achieved: [__/__/____]

Note: The IRS often provides automatic penalty relief for taxpayers affected by federally declared disasters. See IRS Disaster Relief announcements at irs.gov/newsroom. If automatic relief applies, reference the applicable IRS announcement number: [________________________________]

Category 3: Inability to Obtain Records (IRM 20.1.1.3.2.2.3)

☐ This category applies

Factual Statement:

The taxpayer was unable to obtain records necessary to determine the tax liability due to:

☐ Records held by a third party who was unavailable or refused to provide them
☐ Records were in the possession of a government agency
☐ Records were destroyed or lost in a casualty event
☐ Records were in the possession of a former spouse following divorce/separation
☐ Records were in the possession of a prior accountant or bookkeeper who was unavailable
☐ Other: [________________________________]

• Records sought: [________________________________]
• Party holding records: [________________________________]
• Efforts made to obtain records: [________________________________]
• Date records were obtained or reconstructed: [__/__/____]
• Date compliance was achieved: [__/__/____]

Category 4: Reliance on Advice of Tax Professional (IRM 20.1.1.3.2.2.5; Treas. Reg. § 1.6664-4(b))

☐ This category applies

Factual Statement:

The taxpayer relied in good faith on the advice of a competent tax professional regarding the [filing obligation / payment obligation / tax position at issue]. Specifically:

• Name of tax professional: [________________________________]
• Title/Designation: ☐ CPA ☐ Attorney ☐ Enrolled Agent ☐ Other: [____]
• Firm: [________________________________]
• Date advice was provided: [__/__/____]
• Nature of advice: [________________________________]
• Information provided to the professional: [________________________________]
• How the taxpayer relied on the advice: [________________________________]

Legal Standard — Treas. Reg. § 1.6664-4(b):

To establish reasonable cause through reliance on a tax advisor, the taxpayer must demonstrate:
1. The advisor was a competent and qualified professional with sufficient expertise
2. The taxpayer provided the advisor with all necessary and accurate information
3. The taxpayer actually relied on the advisor's advice
4. The reliance was in good faith

Note: Reliance on a professional to file a return does not automatically constitute reasonable cause for late filing if the taxpayer did not exercise ordinary business care in monitoring the filing. (United States v. Boyle, 469 U.S. 241 (1985) — a taxpayer cannot avoid the late-filing penalty solely by relying on an agent to file; however, reliance on an advisor's substantive advice regarding whether a filing obligation exists may constitute reasonable cause.)

Category 5: Ignorance of the Law / Good-Faith Mistake (IRM 20.1.1.3.2.2.6)

☐ This category applies

Factual Statement:

The taxpayer was unaware of the filing or payment obligation due to:

☐ First-time filing obligation (e.g., newly formed business, first year of self-employment)
☐ Recent change in tax law that the taxpayer was not aware of
☐ Complex or ambiguous legal provisions that a reasonable taxpayer would not have understood
☐ Reasonable misunderstanding of the application of the tax law to the taxpayer's situation
☐ Other: [________________________________]

• Specific law or obligation the taxpayer was unaware of: [________________________________]
• Steps taken to comply once the obligation was discovered: [________________________________]
• Date compliance was achieved: [__/__/____]

Legal Standard:

Under IRM 20.1.1.3.2.2.6, ignorance of the law alone does not constitute reasonable cause. However, reasonable cause may exist if:
- The taxpayer's education, experience, and sophistication level are such that the error was understandable
- The tax law at issue was changed or is complex
- The taxpayer made a good-faith effort to comply once the obligation was discovered
- The taxpayer has a history of compliance

Category 6: Ordinary Business Care and Prudence — Financial Hardship (IRM 20.1.1.3.2.2.7)

☐ This category applies — Failure to Pay penalty only

Factual Statement:

The taxpayer was unable to make timely payment of the tax due despite exercising ordinary business care and prudence. The taxpayer's financial condition at the time of the due date prevented full payment.

• Nature of financial difficulty: [________________________________]
• Date financial difficulty began: [__/__/____]
• Income during the period: $[________________]
• Necessary living expenses during the period: $[________________]
• Liquid assets available: $[________________]
• Other debts or obligations: $[________________]
• Steps taken to pay as much as possible: [________________________________]
• Date financial situation improved: [__/__/____]
• Date payment was made: [__/__/____]

Legal Standard — Treas. Reg. § 301.6651-1(c)(1):

For failure to pay penalties, the taxpayer must demonstrate that they exercised ordinary business care and prudence in providing for the payment of the tax but were nevertheless unable to pay by the due date. The IRS considers:
- Whether the taxpayer made a reasonable effort to pay, including borrowing or liquidating assets
- Whether the taxpayer prioritized the tax obligation over discretionary expenditures
- Whether the taxpayer timely filed the return even though unable to pay
- The amount and nature of the taxpayer's expenses during the period

Category 7: Erroneous IRS Advice (IRC § 6404(f); IRM 20.1.1.3.2.2.4)

☐ This category applies

Factual Statement:

The taxpayer received erroneous written or oral advice from an IRS officer or employee regarding the filing or payment obligation.

• Date of IRS advice: [__/__/____]
• Method: ☐ Written ☐ Oral (in person) ☐ Oral (by phone)
• IRS employee name/ID (if known): [________________________________]
• Nature of advice: [________________________________]
• How the taxpayer relied on the advice: [________________________________]
• Documentation of the advice: [________________________________]

Under IRC § 6404(f), the IRS shall abate any penalty attributable to erroneous advice furnished to the taxpayer in writing by an IRS officer or employee acting in their official capacity, provided the taxpayer reasonably relied on the advice.

Category 8: Reasonable Cause for Accuracy-Related Penalty (IRC § 6662; Treas. Reg. § 1.6664-4)

☐ This category applies

Factual Statement:

The accuracy-related penalty under IRC § 6662 should be abated because the taxpayer acted with reasonable cause and in good faith with respect to the underpayment.

Under Treas. Reg. § 1.6664-4(a), the accuracy-related penalty does not apply to any portion of an underpayment if the taxpayer shows there was reasonable cause and that the taxpayer acted in good faith. Relevant factors include:

• The nature of the tax item giving rise to the underpayment
• The taxpayer's effort to assess the proper tax liability
• The taxpayer's education and experience in tax matters
• Whether the taxpayer relied on the advice of a professional advisor
• Whether the taxpayer had a reasonable basis for the tax position taken

Specific grounds:

☐ Substantial authority existed for the tax position (IRC § 6662(d)(2)(B)(i))
☐ Position was adequately disclosed on the return (Form 8275 or 8275-R) and had a reasonable basis (IRC § 6662(d)(2)(B)(ii))
☐ Taxpayer relied in good faith on qualified tax advice (Treas. Reg. § 1.6664-4(b))
☐ Reasonable cause and good faith existed under all facts and circumstances

IV. STATEMENT OF FACTS AND ORDINARY CARE AND PRUDENCE

A. Chronological Narrative

[Provide a detailed, chronological narrative of the facts and circumstances that led to the noncompliance. Include specific dates, actions taken, and the impact on the taxpayer's ability to comply. This section should be tailored to the specific reasonable cause category selected above.]

1. [________________________________]
2. [________________________________]
3. [________________________________]
4. [________________________________]
5. [________________________________]
6. [________________________________]
7. [________________________________]
8. [________________________________]

B. Ordinary Business Care and Prudence

Despite the circumstances described above, the taxpayer exercised ordinary business care and prudence by:

☐ Filing the return / making the payment as soon as the impediment was removed
☐ Maintaining organized tax records throughout the year
☐ Making estimated tax payments / maintaining adequate withholding
☐ Engaging a qualified tax professional to prepare the return
☐ Requesting an extension of time to file when it became apparent the return could not be completed by the original due date
☐ Communicating with the IRS about the situation as soon as practicable
☐ Making partial payments when full payment was not possible
☐ Prioritizing the tax obligation over other non-essential expenditures
☐ Other: [________________________________]

C. Post-Noncompliance Actions

The taxpayer took the following corrective actions once compliance became possible:

☐ Return filed on [__/__/____] — within [____] days of the ability to comply
☐ Full payment remitted on [__/__/____]
☐ Arrangements made to prevent recurrence (describe): [________________________________]
☐ Withholding / estimated tax adjusted for current and future periods
☐ New tax professional retained
☐ Record-keeping procedures improved

V. SUPPORTING DOCUMENTATION CHECKLIST

The following documentation is enclosed to support this request for penalty abatement:

General Documentation

☐ Copy of IRS penalty notice
☐ Form 843 (Claim for Refund and Request for Abatement) — completed and signed
☐ Copy of the tax return for the period(s) at issue
☐ Proof of payment of the underlying tax (if paid)
☐ IRS account transcript for the period(s) at issue (Form 4506-T request or online transcript)
☐ Form 2848 (Power of Attorney) — if represented

Illness / Medical Documentation

☐ Doctor's letter describing the condition, duration, and impact on the taxpayer's ability to function
☐ Hospital admission/discharge records
☐ Prescription records documenting treatment timeline
☐ Death certificate (if applicable)

Fire / Casualty / Disaster Documentation

☐ Fire department or police report
☐ Insurance claim documentation
☐ FEMA determination letter
☐ Photographs of damage
☐ IRS disaster relief announcement reference

Records Access Issues

☐ Correspondence with the party holding the records
☐ Court orders (e.g., divorce decree showing records in other party's possession)
☐ Letter from former accountant/preparer explaining unavailability

Reliance on Professional Advice

☐ Engagement letter with the tax professional
☐ Written advice from the professional (letter, memo, or email)
☐ Professional's credentials documentation
☐ Information provided to the professional

Financial Hardship

☐ Bank statements showing financial condition
☐ Proof of income (pay stubs, P&L statements, benefit statements)
☐ Medical bills, collection notices, or other evidence of financial distress
☐ Unemployment compensation records
☐ Bankruptcy filing (if applicable)

Other

☐ IRS written advice (if claiming erroneous advice)
☐ Prior compliance history documentation
☐ Other: [________________________________]

VI. APPEAL RIGHTS

If this request for penalty abatement is denied, the taxpayer has the following appeal rights:

A. IRS Independent Office of Appeals

The taxpayer may request an appeal through the IRS Independent Office of Appeals by submitting a written protest or small case request:
- Small case request (Form 13711): For penalties of $25,000 or less per period
- Formal written protest: For penalties exceeding $25,000 per period

B. Refund Claim and Suit

If the penalty has been paid in full, the taxpayer may:
1. File Form 843 (if not already filed) or an amended return requesting abatement/refund
2. If denied, file suit in U.S. District Court or the U.S. Court of Federal Claims within 2 years of the disallowance (IRC § 6532(a))

C. Tax Court Petition

If the penalty is assessed as part of a deficiency and the taxpayer receives a Notice of Deficiency (90-day letter), the taxpayer may petition the U.S. Tax Court within 90 days (150 days if addressed to a person outside the United States) without paying the penalty first (IRC § 6213(a)).

D. Collection Due Process Hearing

If the IRS issues a Notice of Intent to Levy or files a Notice of Federal Tax Lien for the penalty amount, the taxpayer may request a CDP hearing (IRC § 6330; Form 12153) and raise reasonable cause as a defense.

VII. ADDITIONAL LEGAL AUTHORITIES

A. Key Case Law Supporting Reasonable Cause

• United States v. Boyle, 469 U.S. 241 (1985) — Reliance on an agent to file a return is not reasonable cause for late filing; however, reliance on substantive legal advice may be
• McMahan v. Commissioner, 114 F.3d 366 (2d Cir. 1997) — Reasonable cause may exist when taxpayer relied on advice of a competent tax professional
• Neonatology Associates, P.A. v. Commissioner, 115 T.C. 43 (2000) — Three-prong test for reliance on professional advice
• Higbee v. Commissioner, 116 T.C. 438 (2001) — IRS bears initial burden of production for penalties under IRC § 7491(c)
• Powell v. Commissioner, T.C. Memo 2014-59 — Reasonable cause established where taxpayer made good-faith effort to comply
• East Wind Industries, Inc. v. United States, 196 F.3d 499 (3d Cir. 1999) — Totality of circumstances test for reasonable cause

B. Revenue Procedure 84-35 (Small Partnership Relief)

For partnerships with 10 or fewer partners (all of whom are natural persons, C corporations, or estates of deceased partners), the IRS will not assert the IRC § 6698 late-filing penalty if all partners timely reported their share of partnership income, deductions, and credits on their individual returns. The taxpayer bears the burden of demonstrating eligibility.

C. Taxpayer Bill of Rights — IRC § 7803(a)(3)

The Taxpayer Bill of Rights includes:
- The right to be informed: Taxpayers have the right to know what they need to do to comply with tax laws
- The right to quality service: Taxpayers have the right to receive prompt, courteous, and professional assistance
- The right to pay no more than the correct amount of tax: Including the right to have penalties reduced when appropriate
- The right to challenge the IRS's position and be heard: Including the right to present reasonable cause evidence
- The right to a fair and just tax system: Including consideration of all facts and circumstances

VIII. PRACTICE TIPS FOR PRACTITIONERS

A. Requesting Penalty Abatement

1. Check FTA eligibility first: FTA is the simplest basis for abatement. Pull the taxpayer's compliance history (Form 4506-T transcript or Practitioner Priority Service) before preparing the reasonable cause statement.
2. Be specific and factual: Vague statements like "I was sick" or "I had financial problems" are insufficient. Provide dates, details, and documentation.
3. Address all four IRM factors: (a) What happened, (b) when it happened, (c) what the taxpayer did about it during the period, and (d) how quickly the taxpayer complied afterward.
4. Demonstrate ordinary care and prudence: Show that the taxpayer handled other affairs responsibly and that the noncompliance was an aberration.
5. File Form 843 when requesting a refund: If the penalty has been paid, use Form 843 to request a refund. If unpaid, a letter is sufficient.
6. Request by phone when possible: For straightforward FTA cases, call the IRS (Practitioner Priority Service: 866-860-4259) to request abatement orally. Document the call.
7. Preserve appeal rights: If denied at the initial level, pursue the matter through the IRS Independent Office of Appeals.

B. Common Mistakes to Avoid

1. Not checking FTA eligibility before preparing a detailed reasonable cause argument
2. Failing to provide supporting documentation
3. Arguing that the penalty is unfair without establishing reasonable cause under the legal standard
4. Relying solely on ignorance of the law without additional factors
5. Missing the refund statute of limitations (generally 3 years from filing or 2 years from payment)
6. Not addressing all penalties separately (each penalty has its own reasonable cause analysis)
7. Submitting the request to the wrong IRS office

C. Relevant IRS Forms

IX. DECLARATION

I declare under penalties of perjury that the facts stated in this Reasonable Cause Statement are true, correct, and complete to the best of my knowledge and belief. I understand that a false or misleading statement may result in additional penalties.

X. CONCLUSION

For the reasons stated above, I respectfully request that the Internal Revenue Service abate the [failure to file / failure to pay / accuracy-related / other] penalty assessed for the tax period(s) identified above. The taxpayer exercised ordinary business care and prudence but was unable to comply due to the circumstances described herein, which constitute reasonable cause under IRC § 6651(a), Treasury Regulation § 301.6651-1(c), and the IRM provisions cited above.

[Alternatively / In addition], the taxpayer qualifies for relief under the First Time Abatement policy (IRM 20.1.1.3.6.1) based on a clean compliance history for the three preceding tax years.

Please confirm abatement and, if the penalty has been paid, issue a refund of $[________________] plus applicable interest. If additional information is needed, please contact me at the address or phone number listed above.

Thank you for your consideration.

Respectfully submitted,

________________________________________
Signature

________________________________________
Printed Name: [________________________________]
Date: [__/__/____]

Authorized Representative (if applicable):

________________________________________
[REPRESENTATIVE NAME]
[TITLE / DESIGNATION (Attorney, CPA, Enrolled Agent)]
[FIRM NAME]
[________________________________]
[________________________________]
Telephone: [________________________________]
E-mail: [________________________________]
CAF Number: [________________________________]

Enclosures

[List all enclosed documents]

1. [________________________________]
2. [________________________________]
3. [________________________________]
4. [________________________________]
5. [________________________________]

Sources and References

• IRC § 6651 — Failure to File / Failure to Pay: https://www.law.cornell.edu/uscode/text/26/6651
• IRC § 6662 — Accuracy-Related Penalties: https://www.law.cornell.edu/uscode/text/26/6662
• Treas. Reg. § 301.6651-1 — Reasonable Cause: https://www.law.cornell.edu/cfr/text/26/301.6651-1
• IRM 20.1.1 — Penalty Handbook: https://www.irs.gov/irm/part20/irm_20-001-001
• IRS Penalty Relief for Reasonable Cause: https://www.irs.gov/payments/penalty-relief-for-reasonable-cause
• IRS Administrative Penalty Relief (FTA): https://www.irs.gov/payments/administrative-penalty-relief
• Form 843 Instructions: https://www.irs.gov/instructions/i843
• Taxpayer Bill of Rights: https://www.irs.gov/taxpayer-bill-of-rights
• Publication 1 — Your Rights as a Taxpayer: https://www.irs.gov/pub/irs-pdf/p1.pdf