In the US, Taxpayers “self-assess and voluntarily” pay taxes. The IRS position is that Voluntary Compliance occurs when a Taxpayer makes a “good faith” effort to meet the Taxpayer’s tax obligations as defined in the Internal Revenue Code. IRS encourages Taxpayer Voluntary Compliance to assure compliant Taxpayers that non-compliant Tax Offenders are identified and penalized.
Fairness of the Tax System is important. At times, relief from penalties such as the failure to file, failure to pay and/or failure to deposit might be attributed to Reasonable Cause.
What is Reasonable Cause?
IRS bases “Reasonable Cause” on the individual facts and circumstances of a Taxpayer’s situation. IRS considers reasons which establish that a Taxpayer used ordinary business care and prudence to meet a Federal tax obligation but was unable to do so. While a Taxpayer’s inability to come up with the funds for tax payments in and of itself is NOT Reasonable Cause for failure to file or pay on time, the reasons for the lack of funds might meet Reasonable Cause criteria for the failure-to-pay penalty.
Facts IRS requires for determining Reasonable Cause:
While Each case is Judged Individually, “Sound Reasons” include:
What is “Ordinary Business Care and Prudence”?
“Ordinary Business Care and Prudence” means that a Taxpayer is making provisions for business obligations to be met when reasonably foreseeable events occur. Reasonable Cause could be established if a Taxpayer is able to provide facts and circumstances that show that the Taxpayer exercised ordinary business care and prudence but was “unable” to comply with the law.
IRS determines if a Taxpayer exercised “Ordinary Business Care and Prudence” by reviewing the following:
Common Taxpayer Circumstances presented to IRS
Don’t be a victim of your own making
Taxpayers that are not able to comply with their tax obligations ought to consult with a specialized tax representative.