When you filed your income tax return, you may have not been able to pay the taxes the IRS says you owe. More than likely, you had your reasons, but that didn’t matter to the IRS. In addition to assessing interest on the amount owed, you also discovered that the agency assessed penalties against you as well.
As you begin to deal with the balance that you owe, you may also be able to have the penalties abated. The IRS does account for the fact that life doesn’t always go according to plan.
Were you unable to pay due to a “reasonable cause?”
If you can show the IRS that you made efforts to pay your taxes, but something prevented you from doing so, it may eliminate the penalties assessed against you for non-payment of your taxes. Not having the funds available to pay is not enough of a reason. Instead, you will need to show that other circumstances made it impossible for you to have the funds available.
For instance, some of the reasons the IRS would consider include the following:
- You suffered a serious illness that prevented you from working or paying your taxes.
- An immediate family member died or suffered a serious illness, and that person’s absence impacted your financial situation.
- You sustained significant losses due to a natural disaster, fire or other circumstances.
These are not the only reasons that may meet the agency’s threshold for reasonable cause, but they do provide an idea regarding the types of scenarios it will consider.
Proving that you had a reasonable cause
You will need to prove to the IRS that you had a reasonable cause for not paying your taxes. In order to do so, you will need to provide the following information and documentation to the agency:
- You will need to describe the incident, including outlining when and where it occurred.
- If you couldn’t pay due to an event such as a fire or natural disaster, you will need to provide documentation of the event.
- If you couldn’t pay due to an illness or death, hospital records, funeral and burial expenses, and the like could serve as support for your position.
- You need to outline how the incident affected your ability to meet your tax obligations.
- You may also need to point to specific circumstances that prevented you from filing and paying your taxes in a timely manner.
- It would also help to point out that you made reasonable and prudent efforts to take care of your tax-related issues as soon as your situation allowed you to do so.
The penalties associated with past due tax obligations can be substantial. If you believe you can demonstrate reasonable cause, you may not have to pay those penalties. Before you make such a request, it may be in your best interests to make sure you know your rights and understand what documentation provides you with the best possible evidence that your situation prevented you from handling your tax obligations in a timely manner.