How do the courts define reasonable cause? List the examples of reasonable cause

Answer 1

No statutory or administrative definition exists for the term "reasonable cause.". However, some courts define it to include such action as would prompt an ordinary, intelligent person to act in the same manner as did the taxpayer under similar circumstances. One of the most commonly encountered examples of reasonable cause is the reliance on the advice of competent tax counsel. However, a recent Tax Court decision held that a corporation was liable for employment tax penalties for failure to file its employment taxes on time even though the company had relied on a CPA to file the returns. Other examples of reasonable cause that the Internal Revenue Manual describes include the following:

• A timely mailed return that is returned for insufficient postage
• Death or serious illness of the taxpayer or his or her immediate family
• Destruction of the taxpayer's residence, place of business, or records by fire or other casualty
• Proper forms were not furnished by the IRS
• Erroneous information obtained from IRS personnel
• A timely mailed return sent to the wrong IRS address
• An unavoidable absence by the taxpayer
• An unavoidable inability to obtain records necessary to compute the tax
• Some other inability to obtain assistance from IRS personnel