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MLI #7: Failure to File Penalty Under IRC § 6651(a)(1), Failure to Pay an Amount Shown As Tax on Return Under IRC § 6651(a)(2), and Failure to Pay Estimated Tax Penalty Under IRC § 6654

TAS Recommendations and IRS Responses



Review and revise notices and publications where appropriate to provide more examples of circumstances that constitute reasonable cause to better educate taxpayers.

IRS RESPONSE TO RECOMMENDATION: As the NTA points out, determining when the IRS may impose the IRC §§ 6651(a)(1), 6651(a)(2), and 6654 penalties for failures to timely file a tax return, failures to pay an amount shown as tax on a return, or underpayments of installments of estimated taxes, respectively, is relatively straightforward. The nearly unanimous rulings in favor of the IRS illustrate the case law is well established, and the statutory and regulatory guidance is exhaustive.

Policy Statement 3-2 (Formerly P-2-7)3, established in December of 1970, states “any sound reason advanced by a taxpayer as the cause for delay in filing a return, making deposits under the Federal Tax Deposit System, or paying tax when due, will be carefully analyzed to determine whether the applicable penalty should be asserted.” Reasonable cause is based on the individual facts and circumstances of each taxpayer, not whether a request meets or follows specific examples. The IRS will consider any sound reason for failing to file, deposit, or pay. Because the reasonable cause determination is based on individual facts and circumstances and cannot be fairly captured within a specific list of examples, the IRS does not agree to implement the NTA’s recommendation in this Most Litigated Issue.

The IRS takes seriously its goal to empower and enable all taxpayers by helping taxpayers understand their rights and responsibilities. IRS.gov clearly describes the types of penalty relief available, examples of situations and facts to consider when requesting reasonable cause, types of supporting documentation that may be needed, and even how to request an appeal if the IRS denied the request for penalty relief4. The IRS is taking steps to increase awareness of penalties and educate taxpayers by making penalty information easier to find in IRS.gov searches; revising current penalties web pages on IRS.gov to expand and clarify information, including how to avoid the penalties through compliance; and adding additional web pages to IRS.gov for certain types of penalties, which will contain more helpful language from Policy Statement 3-2. Notices, publications, and form instructions have undergone continuous updates to address penalty relief and reasonable cause, as applicable,5 and contain sufficient information to inform taxpayers of the options available if they disagree with the penalty.


TAS RESPONSE: TAS agrees there is substantial guidance regarding when reasonable cause should be applied for failure to file, failure to pay an amount shown as tax on a return, and failure to pay estimated tax penalties, and acknowledges that the IRS has made significant efforts to ensure taxpayers can learn about when abatement may be appropriate and how to make such a request.  Additionally, as the IRS points out in its response, TAS agrees that reasonable cause abatement is dependent upon the particular facts and circumstances of a taxpayer’s situation, and there is no fact sheet that can be provided to a taxpayer to determine if reasonable cause abatement is appropriate. However, TAS believes it is critical that taxpayers get as much information about reasonable cause abatement, including examples of when such an abatement may be appropriate, in a variety of formats including notices. This will best observe a taxpayer’s right to be informed and may help in assisting taxpayers in determining when requesting reasonable cause abatement may be most appropriate.


OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A