IRS Uses a "Reasonable Cause" Standard for Penalty Abatement
If sufficient facts and circumstances support the taxpayer's contention that reasonable cause existed for his failure to pay tax within the time prescribed by law, penalties may be abated. See Treas. Reg. Section 301.6651-1(c)(1), Treas. Reg. Section 301.6724-1(a) and IRM 126.96.36.199. Reasonable cause relief should be granted when the taxpayer exercises a standard of care that a reasonable prudent person would use under the circumstances in determining his obligations. Treas. Reg. Section 301.6724-1(d)(1)(i) and IRM 188.8.131.52.1. Reasonable cause is the opposite of willful neglect or reckless indifference. See United States v. Boyle, 469 U.S. 241, 245 (1985); E. Wind Indus., Inc. v. United States, 196 F.3d 499, 504 (3d Cir. 1999); and Higbee v. Commissioner, 116 T.C. 438, 446-447 (2001).
The IRS Recognizes "Reasonable Efforts" Made to Pay or Partially Pay
Penalties exist to encourage voluntary compliance, as well as to bring additional revenues into the treasury, and to deter fraud. IRM 184.108.40.206.1(1), (4). The Internal Revenue Manual directs IRS employees to provide penalty relief if there are circumstances beyond the taxpayer's control. IRM 220.127.116.11.2.2(2D). This same section states that consideration should be provided to any taxpayer who continues to take steps to satisfy his obligation, though late. Id. If a taxpayer quickly brings himself into compliance, especially where his initial inability to pay was due to circumstances beyond his control, IRS employees are to provide the taxpayer with favorable consideration. IRM 18.104.22.168.2.2(C). Moreover, IRS employees are instructed to consider a taxpayer's overall compliance history, especailly for the prior three (3) years. IRM 22.214.171.124.2.2(B).