The IRS may offer penalty relief for taxpayers who can show a reasonable cause for failing to file tax returns or pay taxes. IRS penalties can be waived in certain cases, but the IRS will examine all of the facts and circumstances to determine if a reasonable cause exists in your particular case.
A typical situation that the IRS will consider a sound reason for failing to file or pay taxes is death, serious illness, incapacitation, or unavoidable absence of the taxpayer or a member of the taxpayer’s immediate family. If you owe a substantial amount of IRS penalties, you may want to consult with a tax attorney.
Facts Need to Establish Reasonable Cause Due to Medical Hardship
To request penalty relief due to reasonable cause, you generally should use Form 843, Claim for Refund or Request for Abatement.
You will need to explain to the IRS the circumstances of your medical hardship, how it specifically affected your ability to file or pay taxes, and what steps you took to file or pay taxes once the medical hardship was resolved.
You will need to provide records to support your claim, such as hospital records or a letter from a physician with specific start and end dates to your medical hardship.
The mere fact that you had medical problems will not be enough to convince the IRS that you had a reasonable cause for a failure to file or pay taxes. In one Tax Court case, Hardin v. Commissioner, the court determined that because the taxpayer was able to work full-time and manage rental properties during his medical hardship, he had not shown a reasonable cause for failing to file his tax returns.
On the other hand, if you are unable to work or manage your business affairs due to medical hardship, this fact could help support your claim for penalty relief due to reasonable cause. The specific facts and circumstances of each case will determine how the IRS views your claim.
Even if the IRS grants you penalty relief, you will still be responsible for paying the taxes and interest you owe. However, interest charged on a penalty will be reduced or removed when that penalty is reduced or removed. Interest will continue to accrue until your tax obligations are paid in full.